Prudential Real Estate Portfolio Manager Sees Opportunities in Office, Hotel Sectors

Rick Romano, managing director and portfolio manager at Prudential Real Estate Investors, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Some of the central issues likely to impact REITs in 2015 include interest rate movements and the impact of new supply on rental growth, according to Romano. Developments on the mergers-and-acquisitions front will also be important, Romano said. He noted that following $31 billion of M&A transactions in 2014, the highest level since 2007, the question will be whether REITs match that level of activity in 2015.

Romano also discussed certain REIT sectors that he favors.

He observed that “select opportunities” exist within the office space, notably in situations where rental growth has lagged the broader real estate sector. “From a supply-and-demand perspective, some of those properties are ready to see fairly robust rental growth,” Romano said.

The hotel sector also offers favorable prospects, he added.

“We feel very good about the supply-and-demand dynamics [in the hotel sector]. We’re seeing tremendous revenue and cash flow growth,” Romano noted.

Meanwhile, Romano touched on the issues REITs face when competing with private equity and international investors for acquisitions. Non-U.S. investors and pension funds have a cost of capital advantage over REITs, Romano noted. Therefore, Romano said REITs would be better served by deploying capital in redevelopment opportunities and select development opportunities.

If REITs do choose to do compete for assets, “we would like to see them be a bit more disciplined. If there are areas where they can bid selectively and add value in that process, we’re OK with those types of acquisitions,” Romano said.