Professor Forecasting Strong Fundamentals for REITs

Glenn Mueller, a University of Denver professor and real estate investment strategist at Dividend Capital Group, joined REIT.com for a video interview during REITWeek 2015: NAREIT’s Investor Forum, held in New York.

Mueller said that based on occupancy and rent data, the real estate cycle appears to have moved through the recovery phase and is now in a strong growth phase in a majority of markets throughout the country.

Mueller indicated that the top of the cycle may have been reached in the apartment sector, whereas other property types have not yet reached that point.

“That means that net operating income (NOI) and funds from operations (FFO) growth for REITs should be very strong in the next few years as the economy continues to expand,” Mueller said. Part of that expansion is based on new job growth that is averaging more than 250,000 per month, Mueller said. At the same time, supply remains restricted in most sectors, he noted.

“Most REITs should be able to capitalize on increasing occupancy and increasing rents to improve their NOI,” he said.

Looking ahead, Mueller said the major challenge he sees is the amount of foreign capital entering the United States. “Prices have increased substantially. Therefore, buying at lower cap rates makes getting a good return off of new acquisitions more difficult for the REIT world today,” he said.

In response, many REITs have now turned to development where they can get a higher return, Mueller pointed out.