Nareit's REIT Report Podcast

The recovery in the leisure travel sector continues, despite concerns over new COVID-19 variants, while a similar trend in the business travel segment is yet to emerge, according to Jim Sullivan, managing director and REIT analyst at BTIG.Speaking on the REIT Report, Sullivan said that as of mid-August, “we have not seen any material decline. Traffic volume is holding up pretty well in the face of the Delta variant concerns.”Sullivan said Transportation Security Administration (TSA) data point to a “pretty consistently high” level of comfort in traveling, particularly for the leisure traveler. Recovery in the business sector is going to occur later, however.One reason the leisure market is seeing strong demand is the new flexibility provided to travelers who are able to work remotely, Sullivan noted.

Conditions remain healthy for real estate investment, with inflation expected to be transitory and any increase in long-term interest rates likely to be modest, according to Carly Tripp, global chief investment officer and head of Nuveen Real Estate Investments.Speaking on the REIT Report, Tripp said that although inflation had been felt in terms of cost fluctuations for building materials, Nuveen’s view is that inflation is transitory. “Overall, we’re not concerned at this point and continue to see a recovery across the board with some of these supply/demand imbalances expected to rectify over the next two or three quarters.”Tripp noted that interest rates remain “extremely attractive,” despite expectations of rate rises for the past decade. While the Federal Reserve has indicated it has no plans to increase short term rates anytime soon, long term rates, which are dependent on the market, are not posing a problem either, she added.

Recent REIT M&A activity underscores the resiliency of the real estate sector and more transactions are likely this year as conditions remain favorable for continued deal-making, experts at Deloitte say.Lynn Kawaminami, partner at Deloitte Tax, and Nathan Florio, principal at Deloitte Transactions and Business Analytics, spoke to the REIT Report on July 20.“All the activity that we’ve seen this year has really underscored the resiliency of real estate…even the sectors that struggled last year are starting to come back,” Kawaminami said. “The fundamentals are good, and I think we’re ready to get back to normal.”

Reliance on mass transit is playing a key role in determining the pace at which office markets across the country re-populate, says Julie Whelan, head of occupier research for the Americas at CBRE.Speaking on the REIT Report, Whelan noted that Texas is currently experiencing probably the largest return to the office, despite vaccination rates in some parts of the state lagging the national average. Other markets, such as California and New York, have higher vaccination rates but are returning to the office more slowly because of mass transit dependance, she added.More focus needs to be placed on getting people comfortable on mass transit again and getting it back to normal schedules and routes. “It’s an essential piece of getting people back to work,” she said. Until that happens, “reduced ridership is really only going to sustain that reduced occupancy in buildings that we’re seeing.”Whelan said best estimates point to current office occupancy at only a third of what was considered normal pre-pandemic. That is expected to change in the fall, however, as “the leisure of summer is going to abate and we’re going to get back into that normal routine.”

Real estate deal activity is accelerating in sectors with strong macro tailwinds, along with increased confidence in the public markets toward valuations, according to Tim Bodner, partner and U.S. real estate deals leader at PwC.Speaking on the REIT Report, Bodner said property sectors including logistics, multifamily, and life science have all seen increased deal flow. Office assets located in technology-oriented cities have also seen increased activity, while the leisure and hospitality sectors have also experienced a rise in transactions.“There continues to be an incredible amount of capital on the sidelines” on both the debt and equity side, Bodner said. He also pointed to an “incredible amount” of capital being raised by public non-listed REITs, which topped $3 billion in May.

Fundamentals for U.S. REITs have moved beyond COVID-19 “very distinctly,” with market rent growth, occupancy gains, and cash flow rebound evident across a range of sectors within the industry, according to Cedrik Lachance, director of global REIT research at Green Street.Lachance, who assumes his new role as Green Street’s director of research on July 1st, spoke on the REIT Report.From a GDP perspective, 2021 is a “year of rebound,” Lachance said. He noted that manufactured homes and industrial real estate are two sectors that Green Street believes will have the best combination of market rent growth and occupancy gains over the next five years.From a cash flow perspective, a significant rebound is also occurring in sectors that were negatively affected during the pandemic, including senior housing and lodging, Lachance said. At the same time, he pointed to “very attractive sustainable growth” for the next few years in sectors such as apartments and student housing. A number of other sectors should experience net operating income (NOI) growth in the 4-5% range for the next couple of years, he said.Turning to M&A activity, Lachance noted that, particularly in the public markets, deals have tended to occur between companies with a disparity in the cost of capital. Those deals “make a ton of sense,” he said. Going forward, M&A activity is most likely to occur between companies that have notable similarities but a relative difference in their cost of capital, he noted.As for the future of office, Lachance said that Green Street views work from home “as really the defining story of the real estate world in the pandemic,” and one where the influence extends to a range of other real estate sectors including residential, hotels, and suburban shopping centers. Lachance said the lack of clarity into the future of the office sector will likely last for another 12 months, but “when it’s all said and done, you’ll have about a 15% drop in office demand.”Lachance also commented on trends in European real estate, including the growth of non-traditional sectors. As for broader trends, he noted that Green Street firmly believes that public markets will remain an area of growth for REITs. Lachance also commented on the inflation hedge benefits of real estate.

High-quality office real estate in New York continued to attract investor interest throughout the pandemic, and the office market overall is “certainly improving,” according to Nadir Settles, head of New York office investment at Nuveen Real Estate.Speaking on the REIT Report, Settles noted that while there hasn’t been a lot of price discovery during the past year, the few transactions that did occur, notably for high-quality assets, did well. “Investors showed that they are willing to come to New York for the right product, even if it was office,” he said.Settles said the New York office market has seen about a 10% drop in rents, “which is not bad for where we thought we were going.” Tenant improvements have increased substantially, while concessions have been made to attract tenants, he noted. Tenants are ready to commit quicker on turnkey space, he said, but they also want flexibility on how the deal is structured.

In a REIT Report podcast interview, Robert L. Johnson discusses his early career, his business strategy, and his insights regarding race in America. Johnson is the founder and chairman of The RLJ Companies, LLC, which sponsored the formation of RLJ Lodging Trust (NYSE: RLJ), and the founder of Black Entertainment Television (BET).During the interview with Nathaalie Carey, Nareit senior vice president for industry affairs and social responsibility, Johnson discusses his coming of age at a time when the United States was “opening doors to Black Americans,” and his underlying belief that “you have an obligation to live up to the tenets of society to make the whole community better."

REIT industry ESG data continues to improve both in quality and quantity, yet the lack of standardization remains a challenge, according to Bradford Stoesser, senior managing director and global industry analyst at Wellington Management.In a REIT Report interview, Stoesser said REIT ESG data is “markedly better than even just a few years ago.”“We are starting to see a proliferation of data providers and while more ESG data is a positive, quality and standardization are important, allowing for effective comparisons,” Stoesser said. He noted that companies largely self-report, meaning that transparency is often lacking.Data providers, meanwhile, measure ESG differently and often are not clear in terms of the specific subcategories of E, S and G, and how they are measured, Stoesser explained. “The risk is that investors end up with very different impressions of a corporate’s ESG (information) based on the data they source,” he said.

The authors of a new book on REITs and real estate investment, Educated REIT Investing, say it is the first of its kind to target academic institutions, while still being concise enough to attract a general audience.The book is co-authored by Stephanie Krewson-Kelly, vice president of investor relations at Corporate Office Educated REIT InvestingProperties Trust (NYSE: OFC), and Glenn Mueller, a professor at the University of Denver’s Franklin L. Burns School of Real Estate and Construction Management, and a real estate investment strategist at Black Creek Group.The book updates Krewson-Kelly’s 2016 book, The Intelligent REIT Investor, and includes new chapters by Mueller. Nareit Senior Economist Calvin Schnure and Merrie Frankel, president of Minerva Realty Consultants, also contributed to the book.