Nareit's REIT Report Podcast

Farmland Partners Inc . (NYSE: FPI) President and CEO Luca Fabbri says there is “huge potential” to grow the share of farmland assets within institutional investor portfolios, especially given the sector’s risk return profile, asset appreciation, and inflation protection benefits.A co-founder of Farmland Partners alongside former CEO Paul Pittman, Fabbri was named president in October 2021 after serving as the company’s CFO since its inception. He became CEO in February.Speaking with the Nareit REIT Report, Fabbri said the value of U.S. farmland assets is about $2.7 trillion, with institutional investors accounting for probably 5% or less of that amount. That means that there is still a lot of education to be done to show investors that the asset class offers many potential benefits. Among those are the scarcity of the underlying asset, an attractive risk return profile, asset appreciation, inflation protection, and the absence of correlation with other asset classes.

Essex Property Trust, Inc . (NYSE:ESS) President and CEO Mike Schall says the multifamily REIT is facing favorable tailwinds—including continued tech investment in its core markets, muted supply, and strong balance sheet fundamentals—as he prepares to step down from his current role at the end of the month.Schall has served as president and CEO since 2011. His successor is Angela Kleiman, Essex’s current SVP and COO.Speaking with the REIT Report, Schall said, “Coming out of periods of disruption, we've always been an opportunistic company. We've always found the right investments in the right place. And I think this is the case today.”Schall highlighted the rapid pace of investments underway today by tech companies in artificial intelligence, which is likely to drive the economies of northern California and Seattle. “That will help Essex continue to grow as it has over much of the last 30 years or so.”

The supply of housing in the United States has “never been more out of balance”—with the lack of affordable housing particularly acute—making long-term policy initiatives on the federal, state, and local level more important than ever, says Sharon Wilson Géno, president of the National Multifamily Housing Council (NMHC).Wilson Géno assumed the role of president from Doug Bibby in January, when he officially stepped down after more than 20 years of leading the organization.Speaking on the REIT Report, Wilson Géno said, “The bottom line is, the demand for more housing in this country is as far as the eye can see.”Research by NMHC and other organizations indicates that the U.S. housing stock is in a deficit of about 4 million units.Wilson Géno said new households have formed in the wake of the pandemic, “and that really put a significant strain on the housing supply that was available.” Sizeable rent increases also occurred into the first half of 2022, she noted.

Dynex Capital, Inc . (NYSE: DX) CEO Byron Boston describes the current geopolitical and macroeconomic conditions as an “evolving period” in which the mREIT is maintaining a flexible mindset and evaluating multiple scenarios for the future.Boston, who is also the mREIT’s co-chief investment officer, told the REIT Report that “we're respectful of this evolving period. We're respectful that we may continue to be surprised.” In response, Dynex Capital is carrying more cash and liquidity on its balance sheet, he noted. “Liquidity is absolutely key.”This year, Dynex Capital will not be trying to predict exactly how far or how fast inflation will go, Boston said. “We are evaluating from a month-to-month basis. We're carrying more cash and liquidity because we feel it is dangerous to try to pick one scenario and structure your portfolio around that one scenario with economic variables being this uncertain, and the potential for exogenous shocks to the economy so high.”Dynex Capital’s number one strategy, according to Boston, is “how much risk should we take in this environment? We have a flexible enough mindset not to reject the data as it's coming out.”

Investors looking to allocate to real estate today should consider the listed market first, with REITs in particular priced to deliver annual returns in the high single digit range for the next several years, says Lisa Kaufman, head of global securities at LaSalle.“We see public real estate as unequivocally more attractive than private real estate today,” Kaufman told Nareit’s REIT Report podcast.Kaufman said the REIT market has been “really very rational” through the recent period of tightening financial conditions, “and financial conditions do remain in the driver's seat.” She noted that REIT returns “are attractive and we have a higher level of conviction in our outlook today just given the material tightening of financial conditions and the repricing that's already occurred in the REIT sector.”REITs are underrepresented today in institutional real estate portfolios, Kaufman said. Listed real estate represents around 45% of institutional quality real estate worldwide, but only about 20% of investors’ real estate allocation. REITs have the additional benefit of being disproportionately weighted toward non-traditional property types like self-storage, health care, and data centers, she said.

REITs provide protection against high and moderate inflation across a range of property types, says Nareit Vice President of Research Nicole Funari.Speaking on Nareit’s REIT Report podcast, Funari noted that, in terms of how REITs respond to inflation pressures, “people are inclined to believe that there might be differences among the property sectors, but the data doesn't bear that out.”

The potential for rolling country-level recessions and the impact of higher interest rates on transactions and capital flows are among the main themes influencing global real estate investment in 2023. The result, according to Citi’s global real estate research team, are opportunities mixed in with the broader uncertainty facing investors.“I think there's a lot more uncertainty entering 2023 than we've seen at least in the past few years, putting aside COVID. I think that's going to be the biggest challenge and opportunity depending on how that turns out,” Nick Joseph, Citi’s global head of real estate and head of the U.S. real estate and lodging research team, told Nareit’s REIT Report podcast.Global sector-specific trends that Citi is monitoring include: the future of the office; e-commerce and the impact on brick and mortar; lodging demand and recovery; health care coming out of the pandemic; housing trends; and digital transformation and its impact on infrastructure.

The REIT industry is undertaking “critical” work to ensure that real estate’s leadership, staff, and procurement opportunities better reflect the nation’s wider demographics, says Ayris T. Scales, Nareit’s senior vice president for social responsibility and global initiatives.Speaking on Nareit’s REIT Report, Scales said that Nareit is working together with its REIT members to accelerate change collectively and “elevate the way that we do things on behalf of the industry.”Scales outlined two key projects underway at Nareit to advance diversity and inclusion throughout the industry.She noted that the grant application process for the Nareit Foundation’s Dividends through Diversity, Equity, and Inclusion (DDEI) Giving Campaign opened this week.Among the groups urged to apply, Scales said, are organizations focusing on ways to help secure talent for the real estate industry by looking at ways to expose high school or college students to real estate opportunities through mentorship, internships, and any other types of leadership and professional development opportunities.

REITs have historically made solid returns following the onset of a recession, particularly in the early stages of the cycle, making this an ideal time for investors to begin building an exposure to the asset class, says Rich Hill, head of real estate strategy and research at Cohen & Steers.Speaking on the Nareit REIT Report, Hill said REITs have historically produced average 12-month forward returns of more than 10% following the onset of a recession, with early-cycle returns exceeding 20%.

A recovery in the real estate capital markets is likely to begin around the middle of the year, with transaction activity becoming better supported over the course of 2023 as financial stresses start to ease, says Richard Barkham, CBRE’s global chief economist.Speaking on the Nareit REIT Report podcast, Barkham said, “real estate capital markets tend to lead the economy, both on the downside and in the upturn…it’s going to take a while for investors to start to move because they want to assess the situation in terms of fundamentals. But we do see a capital markets recovery beginning around mid-year.”Barkham said transaction activity is likely to become better supported over the course of the year as financial conditions improve, primarily in the second half of the year. However, “that's not to say there won't be activity in the first half of the year. There is a record amount of capital looking to deploy in real estate and looking for opportunities, particularly if pricing is a little bit more favorable.”