Professor Sees Continued Flow of Funds to Real Estate

Cydney Donnell, director of real estate programs at Texas A&M University’s Mays Business School, joined REIT.com for a video interview at REITWorld 2015: NAREIT’s Annual Convention for All Things REIT at the Wynn Las Vegas.

Donnell shared her views on the state of the real estate cycle.

“I don’t really worry about it too much because I don’t think that’s the question,” Donnell said. Rather, Donnell stressed that a 35-year “supercycle” in the bond market supported by declining interest rates has fueled a surge of money flowing into real estate.

“That’s going to continue to be very supportive of real estate values,” she said.  In fact, “we’ve hardly even begun the process,” as major institutions around the world are still under-allocated to real estate, Donnell added.

“If you are an investor, you want to have some money in real estate, and if you are an individual investor, the best way to do that is with a REIT,” Donnell noted.

Donnell also commented on the disconnect between real estate valuations in public and private markets. She explained that the two markets are totally different: the public market gives instantaneous pricing whereas the private market is transaction-based. Also, different capital sources are involved in the two markets, she said.

Donnell also said she expects foreign capital to keep flowing into real estate in the United States. As a case in point, she noted that despite softness in the Houston market, there is still money flowing in from Latin America and the Middle East.

“A lot of these countries do not have well-developed capital markets, whereas in the U.S. you have the rule of law plus a physical asset you can feel and touch,” she said.