Nareit's Reit Report Podcast

The DLA Piper annual survey of real estate executives cites the availability of capital looking to invest in commercial real estate as a reason for optimism in the current environment.Speaking on the REIT Report, John Sullivan, U.S. chair and global co-chair of DLA Piper’s real estate practice, said “the fact that there are folks out there with money to invest—and actually we’re seeing some increases now in investment—is a reason for some optimism.”The survey showed 58% of respondents citing an abundance of available investment capital as the top reason for an optimistic economic outlook, an increase of 15 percentage points from the 2019 survey. Sullivan pointed to recent estimates of around $400 billion in available institutional capital looking to invest in commercial real estate.

Gaming REITs whose tenants are investing in online gaming (iGaming) platforms are expected to benefit from increased downside protection, according to Spenser Allaway, an analyst on Green Street’s research team and sector head of net lease, gaming, and self-storage.Speaking on the REIT Report, Allaway said downside protection for the gaming REITs will be in the form of improved underlying tenant credit.The three primary gaming REIT tenants are: Penn National Gaming, a tenant of Gaming and Leisure Properties, Inc. (Nasdaq: GLPI); Caesars Entertainment, the operator for VICI Properties Inc. (NYSE: VICI); and MGM Resorts, a key tenant of MGM Growth Properties LLC (NYSE: MGP).“All of these tenants have made sizeable investments to establish an online presence,” Allaway said.

Third-quarter GDP posted the biggest increase in history as it rebounded from a record decline in the Spring, yet it still remains below levels seen a year earlier, indicating that further improvement is needed, said Nareit Senior Economist Calvin Schnure.Speaking on the REIT Report, Schnure noted that even after the 33% increase, third quarter GDP is “still down by as much as you might see in a typical recession, so we still have a ways to go.”As for which areas showed growth, Schnure pointed to spending on goods, particularly items that can be used at home. In fact, total durable goods spending is 12.7% higher than a year earlier, Schnure said.

Retail sales figures for September came in stronger than expected, laying the groundwork for a potentially robust holiday sales season this year, according to Nareit Senior Economist Calvin Schnure.September retail sales jumped nearly 2%, which was stronger than expected. “The economy’s not as weak as some people may have feared a month or two ago,” Schnure said.Nearly all categories of spending are running at about 5% above pre-pandemic levels, although a few notable exceptions include gasoline, restaurants, and clothing and accessories, Schnure said. The overall gains mean that “we could well see a surprisingly robust holiday sales season,” he noted.

Current volatility within the REIT market is creating the potential for opportunistic investment, particularly among well-capitalized companies with seasoned management teams, said Jay Olander, managing partner of Cornerstone Realty Advisors.Olander has served in senior REIT management positions for over 25 years. Most recently, he oversaw the $1.9 billion sale in 2016 of Landmark Apartment Trust, Inc., an apartment REIT.Speaking on the REIT Report, Olander compared current market conditions to those of previous cycles, concluding that “over time, we do expect that the investment market will return, just as we’ve seen in the past.”

A slowing of payroll employment in September raises concerns over the pace of the economic recovery in the months ahead, Nareit Senior Economist Calvin Schnure said.Speaking Oct. 5 on the REIT Report, Schnure noted that despite the 661,000 rise in payroll employment in September, “the report had more warning signs than good news.”The increase came in below market expectations, and while the unemployment rate dropped to 7.9%, a big part of that was because people stopped looking for jobs—especially women and minorities.

The biggest story to emerge from the past six months has been the bounce-back in certain retail sectors. Funari noted that rent collection for free standing retail started out at 73% and by September was almost at 95% of typical rent collected. Shopping centers started the pandemic at slightly over 50% and were at 82% of typical rent collection by September, she noted.Nareit decided to end its regularly scheduled rent collection survey this month, Funari explained, because most property sectors had stabilized by July and the remaining sectors seemed to be heading in that direction through September.Furthermore, rent collection is only one piece of REIT operations, Funari said. “It says a lot about tenant health, which was useful information, especially early in the pandemic, but as we’ve stabilized over time, we’re just not learning new information about the REITs themselves.”

The commercial real estate industry should use the current environment as a catalyst to future-proof assets for the changing ways in which they will be used over the coming decade, according to Nikki Greenberg, founder and CEO of Real Estate of the Future.Speaking on the REIT Report, Greenberg noted that while the ways we live and work have rapidly changed, the spaces we occupy have not. “We really need to use this as an opportunity to become future ready as we look toward 2030,” she said.“Across the board, all sectors do need to do better,” Greenberg said. She stressed the importance of “a different way of thinking” that looks at the full scope of challenges ahead. “You have to have people in the room who don’t think like you…the traditional way of working and owning and operating space, that’s not going to serve us in the short term and it’s not going to serve us very well in the longer term either,” she said.

Most of the current economic news is pointing to an ongoing recovery, including for commercial real estate fundamentals, according to Nareit Senior Economist Calvin Schnure.Speaking Sept. 14th on the Nareit REIT Report, Schnure noted that August retail sales data, to be reported on Wednesday, are expected to show a 1% increase. “Most aspects of retail sales actually are above pre-pandemic levels,” he said.At the same time, the Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose 10% in July and are getting close to the range they were in late last year, Schnure said. Layoffs, meanwhile, have been below pre-pandemic rates during May, June, and July.

Against a backdrop of overall positive economic momentum, the performance gap between property sectors is likely to expand during the second half of the year, according to Carly Tripp, chief investment officer for the Americas at Nuveen Real Estate.Speaking on the REIT Report, Tripp also discussed how to ideally go about positioning a portfolio amidst the current level of uncertainty.“It’s really important to be disciplined and patient during times of uncertainty in order to not sacrifice long-term results or short-term gains,” Tripp said.

August employment data released last week shows that the economic recovery remains on track, despite worries about a potential rebound in the coronavirus, according to Nareit Senior Economist Calvin Schnure.Employers hired back more than a million workers last month, with total payroll employment rising by 1.4 million. This number did include temporary workers hired for the Census, Schnure pointed out, but private payrolls were also up 1 million. The unemployment rate also dropped more than expected, to 8.4%.At the same time, total employment is 11.5 million below where it was in February, Schnure noted, and less than half of the February to April decline in employment has been reversed at this point.

The appeal of attractive urban gathering places has remained intact throughout the coronavirus crisis, despite reports of preferences shifting toward less dense, suburban locations, says Robin Zeigler, EVP and COO at Cedar Realty Trust, Inc. (NYSE: CDR).“One of the things we’ve seen during this period is that people do still have a desire to gather and to be in certain types of environments. The desire to have outdoor dining, the desire to go to a bar is still evident…people want good urban gathering places,” Zeigler told the REIT Report.Cedar Realty owns a portfolio of predominantly grocery-anchored shopping centers in high-density urban markets from Washington, D.C. to Boston.

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.