Nareit's Reit Report Podcast

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.

The innovation trend that emerged in the office sector prior to the coronavirus is only going to accelerate as organizations adapt to changes in how workplaces operate in a post-pandemic environment, according to Julie Whelan, head of occupier research for the Americas at CBRE.Whelan told the REIT Report July 24 that innovation will be accelerated in large part by the success of the remote work model during the crisis. “The office is now becoming just one place among a network of locations where work gets done, so of course the role of it is going to accordingly change,” she said.Prior to COVID, organizations were moving to models that were less hierarchical, less routine- driven, and more project-driven—all of which requires collaboration, Whelan said. Going forward, the conflict between the need for collaboration and increased remote working will spur innovation in terms of the tools and technology that are used every day, and how physical workspaces tie the physical and digital together to drive seamless i

The economy continued to rebound in June, according to housing market data released last week, although the outlook depends on the reopening continuing on its current path—an open question at this point, Nareit Senior Economist Calvin Schnure said.Speaking July 27 on the Nareit REIT Report, Schnure highlighted the jump in new and existing June home sales, with new home sales actually higher than they were a year ago. He said this suggests that the underlying economic demand “is intact as long as it’s safe to go out and go about our business.” Although house prices were a bit soft, as indicated by the Case-Shiller index, on balance the data point to “a reasonably strong housing market as we’re coming out of the shutdown,” he noted.Meanwhile, Schnure noted that jobless claims numbers out last week may have been misinterpreted as more negative than they actually were, as a result of confusion over seasonal factors. “This is really not sending a signal of growing weakness in the job market,” he said.

Economic data released last week show a lot of potential for rebound—as long as the reopening can continue to proceed, according to Nareit Senior Economist Calvin Schnure.Speaking July 20 on the Nareit REIT Report podcast, Schnure highlighted the range of economic indicators for June that were reported, including industrial production, retail sales, and housing starts. Those numbers underscore the possibility of getting the economy back to where it was before the pandemic, but “only as long as the virus is under control,” he said. News that the virus is surging in parts of the United States is creating tension in the market and threatens a pause or partial reversal of economic gains.Schnure also discussed the potential for another round of stimulus. While details remain unclear at this point, the expiration of extended unemployment benefits at the end of this month gives some pressure to meet that deadline, he noted.

Family renter households are likely to account for a growing share of the overall renter pool as the millennial generation begins to raise families and create homes of their own, says Christopher Ptomey, executive director of the Urban Land institute’s Terwilliger Center for Housing.Families currently account for about a third of the overall renter pool, Ptomey told Nareit’s REIT Report, but that is likely to change. “The millennial generation is reaching a tipping point demographically,” he said. “With the size of the millennial generation, we really expect that family renter cohort being a larger and larger portion of the overall number.”

A rollback of state reopening plans across the United States is placing additional strain on REIT tenants, especially those in the retail real estate segment, according to Jim Sullivan, managing director and REIT analyst at BTIG.On July 13, California announced a statewide closure of all indoor operations of dine-in restaurants, movie theaters, and family entertainment centers, among others. County indoor closures include fitness centers, hair salons and barbershops, and malls, if those counties have been on a county monitoring list for three consecutive days.Speaking July 14 on the Nareit REIT Report, Sullivan said certain types of retail will be particularly hard hit by the reclosure orders.“For retailers of apparel, footwear, and accessories, particularly if there’s a seasonal element, it’s going to be very, very difficult for the retailers in the malls to be open on an effective, efficient basis to generate levels of revenue comparable to pre-COVID levels,” Sullivan said.

REIT share prices edged lower last week, as both the broader economy and also the real estate sector continue to be buffeted by the opposing forces of economic reopening and the spread of the virus, according to Nareit Senior Economist Calvin Schnure.Speaking July 13 on the Nareit REIT Report, Schnure said news of more rapid growth of new cases, especially across the Sunbelt, is leading to a reconsideration of the prospects of reopening right away or being able to do so fully, rather than in slow stages.Those concerns were reflected in REIT performance last week, with the sector down on balance, with the exception of timber, infrastructure, and home financing mREITs.

LaSalle Investment Management Securities Global CEO Lisa Kaufman said REITs are attracting investor attention on the basis that they currently offer “very good value” relative to the private market, as well as on a historic basis relative to equities and bonds.Speaking July 6 on the Nareit REIT Report podcast, Kaufman said REITs in the United States and globally have “dramatically repriced,” and are materially underperforming broader equities and private real estate, “so we do see very good value today.”LaSalle has lowered its REIT net asset value (NAV) estimates about 15%, and even with that reduction “we see some big discounts on offer,” Kaufman said. This is not lost on investors, she said, particularly the more opportunistic ones who are “adding money to the sector or even launching new programs to take advantage of what they see, and what we would agree, is a really good entry point.”

Nareit Senior Economist Calvin Schnure said the June employment numbers released last week were a “welcome positive surprise” that shows commercial real estate is heading in the right direction.Speaking July 6 on the REIT Report podcast, Schnure said the 4.8 million jobs reported for June exceeded expectations by a wide margin. The unemployment rate, meanwhile, fell more than anticipated, to 11.1%. While that is still a very high number, Schnure said, “this is a good down payment on the recovery that we’re going to need.”Hiring last month was concentrated in the sectors that had the biggest job losses when the economy shut down, such as retail and hospitality, Schnure pointed out. Despite the jump in employment, many of these establishments will not be doing their pre-crisis level of business right away, he noted.

Nareit Senior Economist Calvin Schnure said the Federal Reserve’s latest bank stress test results point to a banking system that is well positioned to support the real estate economy under various recovery scenarios.Speaking June 29 on the REIT Report podcast, Schnure said the stress tests showed that most banks remain well capitalized under either a V, U, or W-shaped recovery. A V-shape sees the economy recovering later this year or early 2021, a U-shape points to a more sluggish recovery, and a W-shape indicates a double-dip recession.The Fed also suspended share buybacks and limited dividend payments, Schnure said, noting that share buybacks have accounted for about 70% of payments made to shareholders by large banks.

Nareit Senior Economist Calvin Schnure said REITs are facing a “mixed picture” as the forces of economic recovery are being tempered by uncertainty regarding the ongoing risks from COVID-19.In the June 22 edition of the REIT Report, Schnure noted that the recent divergence between the course of the pandemic and the pace of economic activity strengthened over the past week. While REITs and the broader equity markets reacted positively to surprisingly strong May retail sales numbers, that optimism subsided later in the week on news of a surge in new COVID-19 cases and what that means for the prospects of economic reopening.

Gina Szymanski, portfolio manager and director at AEW Capital Management, an affiliate of Natixis Investment Managers, joined the latest edition of the Nareit REIT Report podcast.Szymanski discussed some of the differences between the current COVID-19 crisis and the global financial crisis. She pointed to the size and pace of fiscal and monetary stimulus as “the biggest difference by far.”“During the last crisis the Fed was still learning how to be creative. This time around they are very aware of the playbook," Szymanski said.

In the latest edition of the REIT Report, Nareit Senior Economist Calvin Schnure said investors will be watching this week to see if economic indicators point to an uptrend similar to what was seen in the recently-released May unemployment report.May retail sales numbers released this week will show whether or not spending has bottomed, Schnure said. The Federal Reserve, meanwhile, will report industrial production this week, while housing starts will also be released.“Over the next several days, we’ll get a lot better idea of whether the whole economy is starting to turn towards recovery the way we saw in the job market,” Schnure said.

In the latest edition of the Nareit REIT Report, Darin Buelow, global location strategy leader at Deloitte, looked at the specific challenges that financial institutions face in returning to the workplace after an extended absence resulting from COVID-19.According to Deloitte, financial institutions account for more than 15% of total office leasing activity.Buelow noted that many financial service firms are located in downtown high-rise environments where employees have to use public transportation and deal with elevator access. COVID-19 is hitting these companies “very profoundly,” he noted.

Nareit Senior Economist Calvin Schnure discussed some of the main themes from Nareit’s REITweek: Virtual Investor Conference and the May jobs report in the June 8 edition of the Nareit REIT Report podcast.Schnure characterized the overall mood at REITweek as “cautiously optimistic.”“Obviously we’re still in unchartered waters and there’s a lot of concern about unforeseen risks in the period ahead,” Schnure noted. While economic activity is beginning to resume, few expect it to be without glitches, he added.At the same time, property sectors are seeing a wide range of impacts from the crisis. In the retail sector, for example, the reopening of the economy is expected to help rent collection but going forward many tenants are still going to have a low level of revenue, “so we’re not out of the woods yet on that front,” Schnure said.

The latest edition of the Nareit REIT Report podcast looked at employment trends in the commercial real estate industry with Marc Torrey, vice president and global sales director at SelectLeaders, a career resources platform for real estate professionals.Torrey explained that the landscape for commercial real estate hiring heading into the coronavirus crisis reflected a typical trend seen in an election year: a slow down on the transaction hiring side and a pick-up on the operations and asset management side. “We were already seeing that, and it went into overdrive with the start of the coronavirus,” he said.While commercial real estate hiring slowed down considerably in April, it picked back up in May, according to Torrey, especially for full-service real estate firms. “We have seen it coming back in May and I think we’re going to see a lot of hiring happening over the course of the next few months and even (for) years to come as a result of everything that’s transpired,” he said.

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.