Nareit's Reit Report Podcast

Steven Brown, senior vice president and senior portfolio manager for American Century Investments, was a guest on the latest episode of the REIT Report podcast.Brown described the landscape for REIT investment today, noting that most REITs issued earnings growth guidance for 2024 of around 4%.“The REIT earnings outlook still looks very solid,” Brown said. “Demand is better than supply in most property sectors…higher interest rates as well as the higher cost of construction have started to slow supply in many of the markets we invest in. We think the picture is improving for…REIT earnings growth in 2024 and 2025.”Register for Nareit's REITweek: 2024 Investor Conference: https://go.reit.com/reitweekRR

This episode of the REIT Report’s ongoing series “Building to Zero” features Ben Myers, senior vice president of sustainability at BXP (NYSE: BXP) and continues to dig deeper into the real estate industry’s journey to reduce emissions from the built environment.Myers shares his view on why it is so important to take a long term view on electrification, which refers to the replacement of fossil fuel equipment, like internal combustion engines and gas boilers, with electric motors or heat pumps.The common case for electrification is that building owners can decarbonize and utilize equipment that is significantly more efficient. “Electrification of everything is what I'm here to talk about today. And in particular, how to spread this religion around electrification. I am a believer that we need to electrify the built environment and I'll explain why, but I do think that we need to take some important steps to get there,” Myers says.

Matt Werner, senior portfolio manager for REITs at Chilton Capital Management, was a guest on the latest episode of Nareit’s REIT Report podcast.Werner emphasized the resilience of public REITs amid economic challenges, especially in managing debt maturities and maintaining dividend payments during periods of uncertainty.According to Werner, public REITs are now positioned to capitalize on market volatility, with robust balance sheets enabling them to acquire distressed properties. "We're still kind of waiting for the sort of big moment for public REITs to go out and make significant acquisitions or for private companies to bite the bullet and decide that going public is the only kind of way to save their company."

Bill Hughes, managing director of liquid strategies at DigitalBridge Investment Management, was a guest on the latest edition of the Nareit REIT Report podcast.Hughes discussed some of the trends and developments in digital infrastructure and real estate securities markets today. He noted that the types of real estate businesses that get characterized as digital infrastructure currently compose around 40% of the publicly traded real estate market by value. “That's something that was not true a decade, a decade and a half ago.”When analyzing digital infrastructure, the same issues that impact traditional real estate—such as supply and demand dynamics, unit level economics, the capital intensity of the asset over time, lease structures, and credit counterparties—should all be considered, Hughes said.

Elisabeth Troni, fund manager with CBRE IM’s flagship global investment strategy, was a guest on the latest episode of Nareit’s REIT Report.CBRE IM’s flagship global strategy began to allocate to listed REITs in December 2022. Troni explains the timing behind that decision and the scope it gave the strategy to access niche and specialized property sectors.Since December 2022, the strategy has entirely invested in an actively managed but broadly diversified strategy, Troni said. She added that the addition of a completion strategy, which would unlock opportunities in those specialty sectors, is currently under review.Troni noted that while the market is unsure about when rate cuts may occur, “what we do feel confident about is the fact that higher rates are priced into public markets in terms of the pricing levels, and they have a strong chance to outperform when the market can see the end of rising rates.”

Steve Loffman, managing director at Raymond James, was a guest on the latest episode of Nareit’s REIT Report podcast. Loffman is also a program director and speaker at Nareit’s REITwise: 2024 Law, Accounting & Finance Conference in Hollywood Florida, March 19-21.Loffman described the contours of the REIT capital market landscape today, noting that broadly speaking, “it's been a little bit challenging,” with REITs trading at a discount to net asset value (NAV). “But as time moves on, and if we believe in the yield curve, which I certainly do, I think we'll be making strides to get closer to NAV from an equity perspective,” he added.

This episode of the Nareit REIT Report’s ongoing series, “Building to Zero,” features Dana Schneider, director of energy and sustainability and ESG at Empire State Realty Trust, Inc.(NYSE: ESRT) and continues the discussion related to the real estate industry’s journey to reduce emissions from the built environment.In this episode, Schneider shares how ESRT began the journey on decarbonization more than 15 years ago by focusing on making the business case for deep energy retrofits.“By creating a process and publishing our energy and financial modeling, we showed what every step of the process would look like and demonstrated that we could have a guaranteed savings of 38% with a payback of three years. Frankly, it's better than we thought it would be,” Schneider says. “But more important than just the results was the idea that we could share the process and show what did and didn't work, how to do the right steps in the right order, how to work from the outside of the building in.”

Tony Edwards, Nareit’s senior executive vice president, was a guest on the Nareit REIT Report® podcast. Edwards will be retiring from Nareit at the end of March, and in this episode he reflects on some of the highpoints of his career and the major changes in the industry during the past three decades.Edwards said he expects to see more private real estate shift to the public market over time, pointing to the benefits REITs offer in terms of market discipline, low leverage, and their ability to weather market disruptions such as the great financial crisis and the pandemic.

Three members of Citi’s global real estate research team—Nick Joseph in the U.S., Aaron Guy in the U.K., and Howard Penny in Australia—were guests on the latest episode of the Nareit REIT Report podcast. Amid the market cross currents of slower global economic growth, offset to some extent by anticipated lower interest rates, “we are generally constructive on commercial real estate in 2024,” Joseph said. At the same time, Citi’s 2024 global real estate outlook also stresses the importance of stock picking, rather than broader sector and subsector allocations.For the U.S., Citi is projecting total returns for REITs of 10% to 15% in 2024, with adjusted FFO growth of about 3%. “Growth is being driven by slowing but still solid operating results, development and the redevelopment benefit that is coming on, and the retention of free cash flow,” Joseph said.

Travis McCready, head of life sciences, Americas markets, at JLL, was a guest on the latest episode of Nareit’s REIT Report podcast.McCready said 2023 was one of the most challenging years in memory for life sciences real estate due to a slowdown in the deployment of venture capital, higher interest rates and inflation, and “rather aggressive” real estate development of lab space in the past two years.Based on activity so far in 2024, though, “the year is already shaping up to be much more positive than the year before, so fingers crossed that we are looking at a return to an upwards trajectory in the months and year to come,” McCready said.

Laurel Durkay, head of global listed real assets at Morgan Stanley, was a guest on the latest edition of the Nareit REIT Report podcast.Durkay said REITs today are “cheap” versus broader equities. “They do screen attractively versus private real estate. They look compelling versus where REITs have historically traded, and they look pretty fairly valued versus fixed income. The macro backdrop is favorable with interest rate stabilization and the increasing likelihood of cuts this year… I think valuations look attractive.”Despite this backdrop, negative rhetoric about the real estate sector “and the potential for the other shoe to drop” persists, Durkay said. “Investors in Europe and Asia really do want to learn more about real estate, but it's hard to move past that conversation of the fate of offices in big U.S. cities like New York and San Francisco,” she noted.

Jeff Palma, senior vice president and head of multi-asset solutions at Cohen & Steers, was a guest on the latest episode of Nareit’s REIT report podcast.Palma discussed the launch of Real Assets Compass, an interactive tool designed to help institutional investors and financial advisors make informed decisions about strategic allocations to listed and private real estate.“We feel that there's an education gap among clients, institutional and individual investors alike, about some of the benefits of real estate,” Palma said. “Despite the evidence that we have that historically real estate has positively contributed to both returns and diversification benefits in broad multi-asset portfolios, it's sort of been an under-owned asset class,” he noted.

John Worth, executive vide president, research and investor outreach at Nareit, was a guest on the latest episode of the REIT Report podcast.Worth outlined some of the key messages in Nareit’s 2024 REIT Outlook, including three reasons that may make 2024 a good year for REITs. He noted that historically, at the end of a Federal Reserve tightening cycle, REITs have outperformed private real estate and equities over the following two and four quarters. “We think we saw a little preview of that at the end of the fourth quarter,” Worth said.Meanwhile, the divergence between public and private real estate valuations continues to be quite wide. Worth said that gap is expected to close in 2024, both through REITs performing well and continued markdowns for private real estate.

William Maher, director of strategy and research at RCLCO Fund Advisors (RFA), was a guest on Nareit’s REIT Report podcast.RFA’s clients include some of the larger public pension funds, and increasingly non-U.S. investors.Maher said that most U.S. institutional investors today allocate less than 10% of their real estate allocation to REITs. “I think that indicates a big underweight that they're probably not aware of,” Maher said. He added that RFA’s investor clients continue to want greater exposure to a broader range of property types and will continue to look to REITs to provide that access.Mid-size and larger institutions should have a “permanent long-term position in REITs for diversification, market knowledge, [and] exposure to property types that are difficult to access in the private markets,” he said.

Gwyn McNeal, executive vice president and chief legal officer at  Extra Space Storage Inc. (NYSE: EXR), was a guest on the Nareit REIT Report podcast.McNeal discussed her role at Extra Space, the merger with Life Storage and issues she has dealt with on the legal and personnel side, legal issues facing all REITs today, as well as advice for those seeking a legal career in the commercial real estate sector.Turning to the priorities for 2024 that she is most excited about, McNeal referred to a mandate from Extra Space’s CEO to focus on the fundamentals, after an “incredibly crazy” 2023. That involves making sure new staff are fully onboarded and trained, operating platforms are able to fully support the newly merged company, and that properties acquired through the merger are up to the same specifications as the Extra Space properties.

Andrew Alperstein, PwC U.S. real estate partner, and Daniel Sullivan, PwC U.S. financial markets and real estate leader, discussed key takeaways of PwC and ULI’s Emerging Trends in Real Estate 2024 report, which incorporates data and insights from more than 2,000 industry experts.One of the main themes of this year's report is what it terms the “Great Reset,” in which old assumptions are no longer valid. Alperstein said commercial real estate investors are going to have to be “more diligent, more operationally focused, as they strive to add value and profitability relative to recent years when low rates, decreasing cap rates, and a high amount of leverage was a big part of the way value was created and profitability was obtained.”As for transaction volume, the current environment of higher rates, more rigorous underwriting from the lender side, and a pullback from the banks is going to make it challenging, particularly to get bigger deals done, Alperstein said.

Tracy Powell-Rudy, vice president of corporate engagement at Integrate, a nonprofit that helps organizations identify, recruit, and retain autistic and neurodivergent talent, was a guest on the latest episode of Nareit’s REIT Report podcast.Powell-Rudy discussed the level of awareness around neurodiversity in the wider population today, the level of participation for neurodiverse individuals in the workplace, and some of the key factors impacting their hiring.She also discussed practical steps that companies can take to become more aware of neurodiversity, to make their hiring processes more amenable to neurodiverse candidates, and how to signal to the outside world that neurodiversity is something that’s on a company’s radar.In addition, Powell-Rudy covered best practices for companies that are starting up hiring programs or looking to work with a partner.

Doug Weill, founder and co-managing partner of Hodes Weill & Associates, a leading global capital advisory firm, was a guest on the latest episode of Nareit’s REIT Report podcast.Hodes Weill recently released the 2023 Real Estate Allocations Monitor, which showed that institutions’ target allocations to real estate were flat at about 10.8% year-over-year.“Institutions are very cautious in the market today. And while they're reasonably optimistic about the opportunity to invest over the next couple of years, right now in the moment there are numerous cross currents,” Weill said.At the same time, several large institutions have increased their target allocations over the past 12 months, Weill noted. “I think that has been a signal to the market that they are encouraged about the opportunity to invest and perhaps lean into the opportunity.” Such institutions include Norges Bank and CalSTRS.

Tom Bartlett, president and CEO of American Tower Corp. (NYSE: AMT), was a guest on the latest episode of Nareit’s REIT Report podcast.Bartlett discussed American Tower’s recently launched Sustainability Report and provided an overview of the REIT’s broader sustainability strategy. He explained that “neutral hosting” is central to the company’s inherently sustainable business model. “Neutral hosting allows multiple customers to lease space on a shared single tower or asset, which reduces the number of sites required and minimizes the industry's overall environmental impact”, he said.Beyond providing digital infrastructure, Bartlett noted that American Tower’s global presence enables it to play “a significant role in fostering connectivity in a responsible, equitable, and sustainable way to realize our vision of building a more connected world.”

Aaron Halfacre, president and CEO of Modiv Industrial, Inc. (NYSE: MDV), was a guest on the latest episode of Nareit’s REIT Report podcast.Halfacre discussed Modiv’s evolution toward focusing on industrial manufacturing facilities, after starting out as a diversified net lease REIT.“We discovered that industrial manufacturing facilities were, like us, flying a bit below the radar and also, like us, providing investors with very attractive upside potential. The manufacturing sector has strong fundamentals, solid cap rates, healthy contractual rent bumps, long-term dependable leases, and somewhat of an inefficient transaction marketplace. All of that made it clear to us that we were onto something,” Halfacre said.