Nareit's REIT Report Podcast

The data center industry holds a leadership position on climate change issues as technological advances create greater efficiencies while economies of scale result in a lower energy profile, according to Kyle Myers, senior director of environmental health, safety, and sustainability at CyrusOne, Inc. (Nasdaq: CONE).Speaking on the REIT Report, Myers pointed to estimates that 1-3% of the entire power consumed on earth is consumed within data centers.CyrusOne has set a goal of reaching zero carbon emissions by 2040 across the organization. Myers said innovation on the design side is “super important,” while CyrusOne is also looking at existing efficiencies across the portfolio, such as infrastructure and operational improvements.

Past racially-explicit policies by federal, state, and local governments—especially those concerning housing—imposed a level of segregation on the United States that was so powerful it still determines the racial landscape of today, according to Richard Rothstein, author of The Color of Law: A Forgotten History of How Our Government Segregated America.Rothstein is also a distinguished fellow of the Economic Policy Institute and a senior fellow (emeritus) at the Thurgood Marshall Institute of the NAACP Legal Defense Fund.In a wide-ranging conversation with Nathaalie Carey, Nareit senior vice president for industry affairs and social responsibility, Rothstein pointed to the government’s deliberate move after World War II to create white suburban communities across the country as a key factor in preventing the accumulation of wealth and advancement of the African American population.

Following a breakout year for special purpose acquisition companies (SPACs) in 2020, activity is forecast to remain brisk in 2021, with REITs expected to take a keener interest in the structure, according to Jocelyn Arel and Audrey Leigh, partners at Goodwin.SPACs are a pool of capital formed through an initial public offering (IPO). SPAC sponsors go through the traditional IPO process, complete with Securities and Exchange Commission (SEC) review and roadshows, Arel, a partner in the firm’s Technology Companies practice and leader of the firm’s SPAC practice, explained. The capital is then placed into trust and is available to combine with an operating company and fund that company’s IPO, referred to as the SPAC-IPO.“People are looking at the structure as an efficient way to take companies public and as an alternative to the traditional IPO or direct listings. In essence it’s really giving companies optionality in terms of how they want to approach the market,” Arel said.

Fourth quarter GDP data released by the Bureau of Economic Analysis underscores the continued pressure facing the services sector, although a surge in spending is likely once vaccines bring the pandemic under control, Nareit Senior Economist Calvin Schnure says.Speaking on the REIT Report, Schnure noted that GDP growth in the fourth quarter of 2020 slowed to a 4.0% annual rate after a record 33% in the third quarter.Some slowing was inevitable, Schnure said. He noted that a large divergence remains in place between the services and goods sectors, with the decline in services spending accounting for almost all of the decline in fourth quarter GDP compared to before the pandemic.

While an economic recovery is expected to take hold, benefitting commercial real estate in its wake, any significant improvement is likely to occur starting in the second half of 2021, according to Nareit Senior Economist Calvin Schnure.Speaking on the REIT report, Schnure highlighted some of the key themes of Nareit’s 2021 Outlook for REITs and Commercial Real Estate.Schnure noted that “we’re going to see some strengthening of the economic recovery and that’s going to benefit the commercial real estate markets quite a bit.” However, the improvement will really be driven by vaccines bringing the pandemic under control, which is not expected before the second half.

INDUS Realty Trust, Inc. (Nasdaq: INDT) President and CEO Michael Gamzon says the REIT’s focus on logistics real estate in high growth, supply-constrained markets with multiple drivers of demand positions the company well to respond to changes in supply chain strategies.INDUS recently elected REIT status and changed its name from Griffin Industrial Realty. Speaking on the REIT Report, Gamzon said the company chose to convert to a REIT in part because it “aligned with the business we’re in,” as well as allowing INDUS to seek out capital in order to be an active developer and acquirer of assets.INDUS’ core markets are: Hartford, Connecticut; Lehigh Valley, Pennsylvania; Orlando; and Charlotte, North Carolina. Gamzon described Lehigh Valley as “one of the best performing markets in the country.”

Nareit’s 2020 Leader in the Light Awards highlighted a strong field of companies that have worked hard during the pandemic to put their tenants’ needs first, while also reducing their energy, water, and waste output, according to Cliff Majersik, senior advisor for policy and programs at the Institute for Market Transformation.Majersik served as a judge for the 2020 Leader in the Light Awards. He noted that REITs have put a premium on making their buildings comfortable, productive, desirable, and above all—safe for their tenants.

The increased adoption of automation technology within logistics real estate will help ease the shift toward more resilient, just-in-case supply chains, according to Melinda McLaughlin, vice president and global head of research at Prologis, Inc. (NYSE: PLD).Speaking on the REIT Report, McLaughlin said the shift in supply chain format will put an intense strain on the amount of available supply of property. “Automation can help customers adapt to that and incorporate that move to more resilient supply chains, without necessarily being limited by the amount of labor or logistics real estate out in the market,” she said.McLaughlin noted that the level of automation adoption in logistics real estate is increasing but is lower than most people think. Only about 20% of warehouse facilities incorporate more advanced types of automation, and that’s highly concentrated toward e-commerce facilities due to their labor intensity, she said.

David O’Reilly, CEO of The Howard Hughes Corporation (NYSE: HHC), said the REIT has an “unparalleled opportunity” to continue to drive net asset value (NAV) growth over the next several years and decades.O’Reilly was named CEO at the start of December, after serving in that position on an interim basis since September.Speaking on the REIT Report, O’Reilly attributed the growth potential to increased demand for mixed-use live, work, play communities, coupled with over $1 billion of liquidity on the company’s balance sheet.

Recent news on commercial real estate valuations reflect growing confidence that the sector will start to recover in 2021, said Nareit Senior Economist Calvin Schnure.Speaking Dec. 7 on the REIT Report, Schnure noted that valuations appear to be more stable than they appeared a few months ago, when the sales prices of properties that were being sold showed a big discount. Volumes at that time were light, though. “As we get a better look at the market, the valuations reflect a bit more confidence that the real estate markets will recover next year,” Schnure said.Overall, Schnure noted that real estate is holding up quite well in the current environment, with rent collections recovering as businesses open up, “but obviously there are still strains.”Turning to the broader economy, Schnure noted that while it appears to be slowing, “we’re not at risk of a stall.”