REIT Management Teams Have Learned Important Lessons from Great Financial Crisis

Greg Steele, managing director—head of REIT investment banking at Capital One Securities, Inc., participated in a video interview in conjunction with Nareit’s REITweek: Virtual Investor Conference (held June 2-4).

Steele said that the pandemic has accelerated the online shopping trend and that retail REITs will have to rethink business strategies as a result.

“There’s going to be a lot of thinking about what tenants are absolutely essential to have in the center, and which ones are not,” Steele said. “There’s going to be an evolution of retail tenants as we get through the next several quarters.”

Steele added that the tailwind the industrial sector has seen over several years will only increase as a result of a greater focus on e-commerce during the pandemic. Cell tower and data center REITs have also thrived, outperforming the rest of the REIT industry and the S&P, he said.

“Investors really understand that whatever our new work world looks like, it’s going to have a very large work from home component, and we are going to rely even more on that communications infrastructure,” he said.

Steele said that many of today's REIT management teams were in place during the great financial crisis of 2008, so they have already learned the importance of low leverage, managing debt maturities and liquidity, having access to multiple forms of capital, and using at-the-market (ATM) equity raising facilities. For those reasons, Steele says REITs are well set up to weather the COVID-19 crisis overall.

“The biggest lesson learned for me, if I could boil it down to one simple phrase, is ‘cash is king,’” Steele said. “There have been a lot of decisions made in the last few months that have really been about managing cash, managing liquidity and making sure that they are able to seize the day once we get to the far side of the pandemic.”