Nareit's REIT Report Podcast

With 100% of its ground lease rents paid in 2020 and newly-received investment grade credit ratings, Safehold Inc. (NYSE: SAFE) Chairman and CEO Jay Sugarman says the REIT is “really well positioned to keep growing.”Speaking on the REIT Report, Sugarman noted that despite the challenges of 2020, “last year actually proved how strong the business is.” Meanwhile, new ratings from Moody’s Investors Services and Fitch Ratings “will be a pretty major competitive advantage,” he added.Sugarman noted that when it comes to selecting particular property types, “our mission is to go where the best markets and land is.” Multifamily has been a “great story so far,” and represents about 25% of the portfolio, he said. “I imagine we’ll be in all property types in the top 30 markets in the next year or so.”

Social media site Clubhouse is emerging as a new and innovative way to facilitate education about commercial real estate and to provide networking opportunities for individuals across the industry, according to David Auerbach, an institutional trader at World Equity Group, Inc.Clubhouse is an invitation-only iPhone social media app launched in 2020 that enables users to join live audio discussions on a range of topics hosted in ‘rooms’ on the Clubhouse platform. Participants can enter the various rooms as an audience member and can join the conversation by digitally raising their hand to the host.Speaking on the REIT Report, Auerbach discussed his own involvement with Clubhouse, which includes hosting daily discussions on a variety of REIT and real estate-related topics with his partner, Yoni Miller.

Nareit’s T-Tracker fourth quarter 2020 data indicate that the REIT industry is recovering from its weakest levels seen during the pandemic.Speaking on the REIT Report, Nareit Senior Economist Calvin Schnure said the REIT industry is “showing a good continuing recovery, not a complete recovery, but a recovery from the worst part of the pandemic a year ago.”According to the T-Tracker, funds from operations (FFO) of all equity REITs gained 11.3% in the fourth quarter from the third quarter, which itself was 10.3% higher than the second quarter. The recovery is not uniform, Schnure pointed out. Earnings for sectors at the front line of the shutdown, such as lodging and retail, continue to be quite weak. Other sectors have benefitted, namely those that support the digital economy, as well as industrial.

Differences in how real estate sectors perform have never been as “profound” as they are today, according to Michael Sonnenfeldt, founder and chairman of TIGER 21, a peer membership organization of high net worth current and former entrepreneurs, investors, and top executives.TIGER 21 members collectively manage personal assets of over $85 billion.Speaking on the REIT Report, Sonnenfeldt described the current situation in real estate as a “tale of two cities,” with retail “in a difficult strait” and industrial “on fire.”Sonnenfeldt explained that real estate has been the number one asset allocation for TIGER 21 members since the group was founded in 1999—and is likely to stay that way. Currently, real estate accounts for 27% of TIGER 21 portfolios and is favored by members due to its unique benefits and member expertise in the field, he said.

Matt Ritter, senior research consultant for NEPC, joined guest host Meredith Despins, Nareit senior vice president, investment affairs, for a special edition of The REIT Report podcast to discuss how REIT-based investment can deliver access to a 21st century real estate portfolio.NEPC is an independent investment consultant and private wealth advisor. Its clients—including public pensions, corporate pensions, endowments, foundations, health care groups, and private wealth—collectively represent approximately $1.1 trillion in total assets. Ritter is a member of NEPC’s Real Assets Research Group and the Portfolio Construction Lead for the Real Assets Beta Group.Speaking to the challenges clients are facing in their real estate portfolios today, Ritter noted that many clients—particularly those with net outflows—are seeking durable income and are asking “what’s the future of my existing portfolio going to look like?”Historically, many institutional investors have accessed real estate through private markets, which focuses on the four main property types: Office, Apartments, Retail, and Industrial. “We’re seeing a pretty wide range of returns and expectation by property type. This was a trend that was evident prior to the pandemic, but has really accelerated over the past year,” he observed.

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.