Nareit's REIT Report Podcast

Nareit’s T-Tracker, a comprehensive summary of REIT earnings and operating performance, showed an overall picture of weak earnings in the first quarter, with about half of the 9% decline in funds from operations (FFO) reflecting the lodging and hotels sector.Speaking May 26 on the Nareit REIT Report podcast, Nareit Senior Economist Calvin Schnure noted that regional malls also had a decline in earnings and most other property sectors had modest declines. Industrial REITs, meanwhile, had a 21.7% increase in FFO, and single family home REITs saw a 7% FFO increase.Most of the first quarter predated the COVID-19 crisis. As a result, second quarter T-Tracker results are likely to be “quite a bit weaker,” Schnure said.

Commercial real estate firms are beginning to implement lessons learned from the COVID-19 pandemic and create targeted measures to emerge stronger in the medium-term, according to Jim Berry, U.S. real estate leader at Deloitte & Touche LLP.Speaking on the Nareit REIT Report podcast, Berry noted that the industry has moved from an initial ‘respond’ phase into a ‘recover’ phase, with many commercial real estate executives now focused on issues such as preparing for re-entry to physical spaces and promoting employee and tenant wellbeing. Executives are also looking at what worked well in the early stages of the crisis and what needs to be improved upon, he said.

The latest retail sales data point to a continued role for brick and mortar retail once the coronavirus crisis passes, according to Nareit Senior Economist Calvin Schnure.Speaking May 18 on the Nareit REIT Report podcast, Schnure noted that the more than 8% rise in non-store retail sales in April, which includes e-commerce, was unable to offset the overall decline of 16.4%.“Online commerce is still no substitute for a lot of the shopping that people do. So, even after this crisis passes, this tells us there’s still a strong role for brick and mortar retail sales,” Schnure said.

Hudson Pacific Properties, Inc. (NYSE: HPP) is preparing to welcome tenants back into its buildings by implementing new standard operating procedures across its portfolio, touching on everything from enhanced cleaning to increased signage and physical distancing policies.Speaking on the Nareit REIT Report podcast, Natalie Teear, vice president of sustainability and social impact at Hudson Pacific, said the REIT is rolling out a “four-C’s” approach that encompasses communication, confidence, convenience, and cooperation. Hudson Pacific is also launching a mobile app at all of its multi-tenant properties in order to share the most up to date information with tenants on a real-time basis.

The REIT industry’s focus on the needs and concerns of its tenants will become increasingly important as a result of the coronavirus crisis, according to Gil Menna, co-chair of the REITs and Real Estate M&A practice at Goodwin.Speaking on the Nareit REIT Report podcast, Menna said one of the ways that REITs can be opportunistic in the current environment is by focusing on unique ways to deal with tenancy concerns that evolve from the pandemic.“Trying to attract tenants back to [real estate] space, using the space in a way that’s novel and useful to tenants to addresses their needs and concerns—and helping them psychologically become productive again—will be an important part of the opportunity set available to REITs,” Menna said.

Nareit Senior Economist Calvin Schnure said that while the April jobs report was “clearly a shock to the economy,” the bulk of job losses were confined to a few sectors facing complete shutdowns.In the May 11 edition of the REIT Report, Schnure noted that the April report showed a record decline in employment while the unemployment rate jumped to 14.7%, the highest level since the Great Depression. However, the data are “less alarming than we might have expected,“ Schnure said. He noted that 60% of the job losses were in sectors such as restaurants, doctors’ offices, and retail—which may be in a position to rehire at a later date.

The retail real estate sector is leading the way in terms of preparing for a post-COVID 19 return to more normal business operations, according to Nareit Senior Economist Calvin Schnure.Speaking May 4 on the Nareit REIT Report, Schnure pointed to the various new safety measures that Simon Property Group, Inc. (NYSE: SPG) has implemented in order to reopen some of its malls.“The retail sector and the shopping malls are not isolated, they’re just the first part of our economy that’s going to be dealing with a post-COVID world. They are pioneering the way so that people can interact safely together,” Schnure said.

A new small business loan program recently launched by Kite Realty Group Trust (NYSE: KRG) is trying to give its tenants a “bridge to the other side” during the current economic uncertainty, said Kite Realty chairman and CEO John Kite.In the May 1 edition of the REIT Report, Kite said the company is “on the front lines of this thing as it relates to the small business community.” The KRG Small Business Loan program will provide up to $5 million in total assistance and allow Kite’s small business tenants to request a loan amount of up to three months of operating expenses.Kite said the idea to assist the REIT’s tenants, who were having difficulty accessing the Paycheck Protection Plan, “gained steam very quickly inside the company.”The reaction to the program so far has been positive. “We fully anticipate looking to lend out as much as we can in this program,” Kite said.

The REIT industry’s “heavy footprint” in non-traditional asset classes gives it a clear advantage as the world adapts to new ways of living in response to the coronavirus crisis, said Scott Crowe, Chief Investment Strategist at CenterSquare Investment Management.Speaking April 30 on the Nareit REIT Report podcast, Crowe said the crisis “ushers in a whole new paradigm of what real estate really is,” especially the idea of core versus non-core real estate. “The reality is that the way we live our lives is going to evolve significantly,” he noted.One of the advantages that the REIT industry has is its “heavy footprint” in non-traditional asset classes, such as data centers and towers, Crowe said. He noted that the industry has “a much higher proportion of winners than losers as it relates to what the post-COVID-19 real estate new normal may look like.”

While REIT share prices drifted lower in the past week, conditions appear to have settled somewhat compared to the large swings seen in the early weeks of the coronavirus crisis, said Nareit Senior Economist Calvin Schnure.Speaking April 27 on the Nareit REIT Report podcast, Schnure pointed to single digit moves in the past two weeks. One possible reason for the more restrained movement is the approach of first quarter earnings, he noted: “There could be a lot of investors who are in a wait-and-see mode.”Looking at real estate markets overall, Schnure highlighted the release of CoStar data showing demand weakened considerably across all major property types, despite social distancing going into effect only in the closing weeks of the quarter. Net growth of demand for office space was at its lowest level since 2010, and net demand for retail space fell due to store closures, the first decline since 2009.