Nareit's REIT Report Podcast

Continued signs of resilience in the economy, even as the coronavirus remains active, point to a positive environment for commercial real estate going forward, according to Nareit Senior Economist Calvin Schnure.Speaking Aug. 31 on the REIT Report, Schnure noted that new home sales in July rose to their highest level since 2006. Durable goods orders rose more than expected, and industrial production and business investment are on track to return to pre-pandemic levels, he added. Consumer spending also rose nearly 2% in July.

While COVID-19 has created short-term disruption and altered business and leisure routines, trends prevalent today may not necessarily remain in place for the longer term, according to Bernhard Krieg, managing director and portfolio manager on the real estate equities team for Brookfield’s Public Securities Group.Krieg noted that a valuation shift between growth and value-oriented stocks was already evident before the pandemic and has diverged further since then. However, “to a certain degree these trends are not permanent, in our view,” he said.“It’s easy sometimes to extrapolate the most recent trends and think they will not change materially…It’s our view that we are going to revert back to normal and investing globally gives us some important perspective on some of the markets where the pandemic has subsided,” Krieg said.

The economy continues to experience a high degree of uncertainty, but operating performance across the REIT industry indicates that there could be some upside potential in the year ahead, said Nareit Senior Economist Calvin Schnure.On the economic front, positive figures for housing starts, existing home sales, and the homebuilders’ survey have been tempered by high jobless claims, soaring mortgage delinquencies, and a wave of bankruptcies.“The bottom line right now is that the economy is struggling to get back on its feet. It’s making some progress, but it’s going to continue to struggle so long as the COVID-19 virus remains uncontained,” Schnure said.

After spending much of the second quarter in a defensive mode, VICI Properties Inc. (NYSE: VICI) is now actively looking for ways to opportunistically deploy capital, says CEO Ed Pitoniak.Speaking on the Nareit REIT Report, Pitoniak said that once VICI began to receive signals that its assets, particularly those in regional markets, were going to reopen strongly following COVID-19 shutdowns, “we felt confident enough to go back on the offensive.”In mid-June, VICI announced it had agreed to provide a $400 million mortgage loan secured by the Caesars Forum Convention Center in Las Vegas and had also agreed to acquire approximately 23 acres of undeveloped land parcels adjacent to the center of the Las Vegas Strip for approximately $103.5 million.

Retail sales data for July point to a resumption in consumer spending, providing a boost for the retail REIT sector that has been under pressure throughout the coronavirus crisis, according to Nareit Senior Economist Calvin Schnure.Retail sales rose 1.2% in July. While the increase was slower than that seen in the previous two months, sales rose to a level that was higher than before the crisis. Schnure noted that this is the fastest in history that retail sales have ever fully reversed the decline that occurred during a recession.“This is good news for the retail REITs in the months ahead, that we’re seeing the retail spending coming back,” he said.

Boston, San Diego, and San Francisco continue to attract the lion’s share of life science venture capital investment, but strong industry tailwinds are raising the prospects for a number of other markets across the nation, according to Audrey Symes, director of research for healthcare, life sciences, and advisory at JLL.Speaking on the REIT Report, Symes noted that even before the coronavirus crisis, the life science sector was at a point where many years of research and development were starting to bear fruit, including less expensive and more accessible gene mapping and personalized medicine.“Life science was on an upswing, regardless,” Symes said, with venture capital inflows into the sector reaching a peak. “The stimulation from Operation Warp Speed and biomedical advanced research and development authority from the federal government is just adding fuel to the fire,” she said.

Economic reports released in the past week were mostly positive, but with millions still unemployed and benefits expiring, the need for additional stimulus measures remains, according to Nareit Senior Economist Calvin Schnure.Speaking Aug. 10 on the REIT Report, Schnure said economic data reported last week “helps dispel some of the fears that the recovery stalled last month” due to the continued spread of the coronavirus.Schnure noted that the ISM survey on manufacturing rose to 54.2, stronger than expected and above the 50 mark that indicates a growing sector. Motor vehicle sales were at a 14.5 million unit pace last month, also above expectations. “Consumers are coming back as the economy reopens,” he said.

Executives from Duke Realty Corp. (NYSE: DRE), a leader in corporate responsibility matters, joined a special edition of the REIT Report on August 5 to share their observations and advice on initiating and growing a vibrant ESG strategy that is embraced at all levels of the company.In conjunction with Nareit’s multimedia series ESG Exchange, Nareit Executive Vice President and General Counsel Cathy Barré spoke with Ann Dee, executive vice president and general counsel, and Megan Basore, vice president of corporate responsibility.Dee played a key role in the evolution of the ESG function at Duke Realty, serving in 2015 as the executive liaison of a cross-functional group of leaders looking at how to move forward on ESG matters. This led to the creation of a cross-functional corporate responsibility council.

Declines in second quarter GDP were concentrated in a few front-line sectors, making it more likely that the economy can begin to recover by the second half of this year or the first half of 2021, according to Nareit Senior Economist Calvin Schnure.Second quarter GDP data released last week showed an annualized decline of 32.9%, which was in line with expectations. Schnure noted that the decline was front-loaded, as shutdowns had the biggest impact in April. Since then, there has been a relatively robust rebound as the economy began reopening, although he warned that some slippage of gains could occur if COVID-19 puts the reopening on hold.

The total value and volume of real estate deals across all property sectors declined in the first half of the year compared to the previous six months, but activity is expected to recover by the fourth quarter, according to Tim Bodner, partner and U.S. real estate deals leader at PwC.PwC recently released its mid-year review of real estate deal activity that showed almost a 50% decline in deal value and volume in the first half of 2020 compared with the second half of 2019.While the declines occurred across the board, Bodner noted that on a six-month basis, logistics was the only sector that experienced a year-over-year increase. In the first half of 2020, about $42 billion of logistics activity occurred versus $34 billion in the first half of 2019, he noted.