Nareit's Reit Report Podcast

As decarbonizing buildings becomes essential to achieving net zero emissions goals, the real estate industry needs to rebalance its efforts away from new building in favor of retrofitting existing buildings, says Jeremy Kelly, director of global research at JLL.Speaking on the REIT Report, Kelly said retrofitting has to become “the new normal” given that about a 10th of global emissions are coming from new construction.JLL has calculated that in mature cities, 80% of office buildings that exist today will still be standing in 2050. That means a retrofitting rate of about 3-3.5% of inventory every single year to meet net zero targets. However, that compares with retrofitting rates that are around 1% today. “So, we've got to triple, quadruple the rates of retrofitting,” Kelly said.

Constriction in the credit markets has caused real estate investment transactions to slow, but there’s still plenty of dry powder on the sidelines ready to execute as soon as clearer price discovery emerges, says Byron Carlock, real estate practice leader at PwC.Speaking on the REIT Report, Carlock said that the current sentiment is one of cautious optimism. “Demand on the street from any of the product types is still quite good, especially multifamily, industrial, even the hotel sector. And frankly, retail is picking up again.”Carlock discussed the sectors highlighted in PwC’s Emerging Trends in Real Estate 2023 report that are likely to be most insulated from economic uncertainty. Industrial was in first place, followed by multifamily. “Affordability of home ownership continues to suffer, so we’re moving to a greater renter orientation in our population,” he said.

The REIT industry is likely to see additional gains in GRESB performance in the years ahead, given that a number of listed REITs appeared in the benchmark for the first time this past year, says Dan Winters, senior director at GRESB.Speaking on the REIT Report, Winters noted that in general, GRESB scores start to ramp up in year two and year three, “so I'm really expecting some additional increases in the REIT score in the years ahead.”Winters also discussed how a flight to quality real estate assets is likely to characterize the next several years, with companies needing to offer a superior investment and occupant experience to maintain competitiveness.Winters said that achieving those aims requires “a solid ESG program that's continuing to advance.” He added that the biggest threat to ESG is inertia, but that in the current economic climate the real estate industry is more likely to accelerate ESG-oriented efforts than pull back.

A growing need for more mid-market affordable housing, particularly in its targeted Sun Belt markets, has Elme Communities (NYSE: ELME), formerly WashREIT, anticipating its strongest growth in 20 years, says President and CEO Paul McDermott.“That mid-market renter is really the deepest part of the demand curve, and we only see that curve growing,” McDermott told the REIT Report. While acknowledging the current volatile interest rate climate, he added that it doesn’t “erase the fact that there is a significant need for more affordable homes, especially in the markets that we're targeting, and in that particular rental band cohort that we're targeting also.”Elme has been fully focused on multifamily since completing the sale of retail and office assets in 2021, although the REIT started messaging its intent to focus on multifamily back in 2016.McDermott noted that households making between $35,000 and $75,000 comprise over a third of rental households in its targeted Sun Belt markets. However, the sha

REITs active in life sciences real estate are increasingly looking to complement their domestic portfolios with holdings in international markets where world-class scientists and strong infrastructure are creating a “vibrant ecosystem,” says Travis McCready, head of life sciences, Americas markets, at JLL.“The life sciences market is increasingly going global, and from a REIT perspective, it's going global faster,” McCready told Nareit’s REIT Report. “I can't think of any of the leading REITs, publicly traded or private, that are simply looking at portfolios in the U.S. anymore. Everyone is looking for exposure across the Atlantic and across the Pacific.”In addition to seeking ways to deploy capital, REITs are taking advantage of international markets that are “incredibly effective” at creating conditions ripe for life sciences innovation, McCready said.Elsewhere in the podcast, McCready noted that from a venture capital standpoint, things are looking “quite good” for the life sciences market. Howev

Healthy building environments have become an essential requirement for attracting and retaining tenants, and also for ensuring that real estate assets avoid becoming stranded for failing to meet baseline requirements, says Joanna Frank, president and CEO of the Center for Active Design (CfAD), operator of the Fitwel healthy building certification system.Speaking on the REIT Report, Frank noted that “health is seen as essential. It is seen as table stakes. If you want to attract and retain tenants, you really need to be able to answer that question of ‘how is this a health-promoting environment?’”For investors, Frank pointed to “a distinct possibility of having stranded assets, of actually seeing your asset become less valuable, if you aren't meeting that baseline for being a healthy building because your peers and your competitors are able to articulate that.”

Widespread acceptance that PropTech is an integral part of the real estate landscape today has helped accelerate the adoption of new tech solutions and paved the way for real estate stakeholders to act more nimbly than before, says Sarah Liu, partner on the Real Estate Technology Investment team at venture capital firm Fifth Wall.“Instead of having to wait sometimes maybe more than a year in order to get a decision, we are seeing folks able to test and pilot technology with a speed to deployment of sometimes just a matter of weeks,” Liu told the REIT Report.Liu noted that four or five years ago, the annual amount invested into PropTech was around $4 billion; by last year that number had risen to about $30 billion.Turning to areas where Fifth Wall is collaborating with REITs in PropTech adoption, Liu pointed to investments in electric vehicle charging and property management, including maintenance and renovation. She noted that there are more opportunities for collaboration that haven't yet been tapped, o

Inflation pressures, higher interest rates, and supply chain challenges have created a climate of uncertainty in which commercial real estate executives see revenues coming under pressure, according to Deloitte US Real Estate Leader Jeff Smith.Speaking on the REIT Report, Smith said that Deloitte’s 2023 Commercial Real Estate Outlook, which is based on survey results for more than 450 CFOs, showed that 48% of respondents expect revenues to decrease in 2022. That compares with only about 9% expecting a decrease in the prior year’s survey.Despite the anticipated decline in revenues, CFOs were “pretty positive” when it came to real estate fundamentals, Smith said. Over 50% of CFOs said they expect increased leasing and rental rates in the next 12-18 months, along with decreased vacancies, he added.

Making substantive progress on ESG issues involves going beyond individual corporate actions to encompass industry-wide efforts to bring about real change, says Mneesha Nahata, SVP, Legal & Chief Sustainability Officer at American Tower Corp. (NYSE: AMT).Speaking on the REIT Report, Nahata noted that in addition to finding practical solutions, making investments, and innovating as a company, “it is really about working together and collaboration with other like-minded companies to make a substantive difference, whether that is working together to reduce greenhouse gas emissions, or bridging the digital divide to provide upskilling opportunities to underserved communities.”Nahata said American Tower has placed sustainable operations at the core of its business. “We believe we can be champions of change in the industry and that requires addressing ESG holistically across our organization. And that includes at the very top.”

The recently enacted Inflation Reduction Act contains $369 billion in energy-related provisions, including new tax credit incentives that were previously unavailable to the REIT industry, says Nareit EVP and General Counsel Cathy Barré.Speaking to the REIT Report, Barré points out that a number of obstacles have historically limited the ability of REITs to utilize tax credit incentives, with REIT tax credits typically going unused.Barré points out that under the new legislation, however, REITs that make an eligible investment in EV charging stations, or geothermal and solar capability, will now have the full tax credit available to sell at the REIT level.During the interview, Barré discusses how the legislation will impact REITs that invest in eligible sustainability-related projects. She also explains the nature of the tax credit incentives, and how REITs can qualify.

A corporate governance structure that includes board members that are independent, yet work as strong partners to the executive board, has clear long-term benefits for REIT performance, says Bill Ferguson, chairman of global professional services firm Ferguson Partners.Speaking on the REIT Report, Ferguson said “it’s a fine balance…the board is there to be a fiduciary and represent the shareholders’ interests, but the bottom line is that they also need to be a good partner to the leadership team to make sure that the strategy and the execution of the business makes sense.”Issues surrounding governance, in addition to a range of other ESG topics, will be explored at Nareit’s upcoming REITworks: 2022 Conference held on Sept. 12-13 in La Quinta, California.

With listed REITs trading at sizeable discounts to their underlying gross asset value, institutional investors should prioritize public real estate at this time, says Dave Bragg, co-head of strategic research at Green Street.“Now is a great time to prioritize the public market as it is on sale,” Bragg told the REIT Report.Bragg stressed the advisability for investors to have a dual mandate across the public and private real estate markets as it “really does maximize one's opportunity to generate alpha.”Listed REITs have had meaningful declines this year, Bragg noted, but it reflects a broader trend, which is that “just about every asset that one can imagine has delivered a negative total return.”Bragg also noted that capital flows are a key driver of the disconnect in public and private market values. Private market flows have remained robust in 2022 and may even match last year’s record-setting tally, he said. Meanwhile, flows into listed REITs “remain quite tepid.”

The sale of roughly half of PREIT’s (NYSE: PEI) portfolio of shopping malls, combined with the replacement of unproductive department stores with better performing assets, positions the company well for the future and makes a compelling case for investors, says Chairman and CEO Joe Coradino.Speaking on the Nareit REIT Report, Coradino also commented on how PREIT is evolving its properties into community hubs.“With assets in Philadelphia and Washington, D.C. that are well located, and with opportunities to do upwards of 4,000 apartments, [as well as] medical facilities and life sciences technology, our ability to attract either buyers or joint venture partners is pretty profound. It gives us a way to harvest capital and create value in these properties,” Coradino said.

Real estate deal activity is concentrating on sectors that can perform well in a rising rate environment or in periods of high inflation, with experiential-oriented assets in particular demand, says Tim Bodner, partner and U.S. real estate deals leader at PwC.Speaking on the REIT Report, Bodner said PwC has continued to see activity building in the lodging space, as well as for casinos, marinas, and ski resorts. “All things that are tied to people being out.”Bodner said PwC is anticipating robust deal activity in the back half of 2022, although it may be more episodic in the listed segment of the market.The current environment has meant that there’s a lot more focus on underwriting, Bodner said. “Certainly, growth in rents and in NOI is something that folks are spending a lot of time putting attention on to make sure they feel good about their forward projections.”

Commercial real estate is in a position to take a leading role to advance the sustainability agenda, while regulation is also helping to move the whole industry forward, says Matt Ellis, founder and CEO of Measurabl, a provider of ESG data management solutions.Speaking on the REIT Report, Ellis said there is a “tremendous leadership opportunity in our sector to really take advantage of the transition to green for the better of everyone—our occupiers and customers, our investors, and certainly ourselves as well. I think that we're in a good position to do it. We just can't slow down. We’ve got to speed up.”Ellis described Measurabl, launched in 2013, as a “decade-long project to build the tools for measuring, managing, reporting, and ultimately acting on sustainability for the real estate sector.” He noted that there has been “a profound migration of organizations of every size around the world towards more sustainable business models. This is being done in just the span of a few years.”

The affordable housing crisis facing the United States today is not just a lower-income phenomena, but impacts individuals making six-figure salaries, says Kenneth Bacon, co-founder and managing partner of financial advisory and asset management firm RailField Partners, and former Fannie Mae executive.Speaking on the REIT Report, Bacon, who also serves as board chair at Welltower Inc. (NYSE: WELL), said “if you pull back the covers and look at the data, you'll see that young professionals, people earning six figure salaries in cities like San Francisco and New York, are hard pressed to find places that they can afford.”Bacon said the biggest problem behind the lack of affordable housing today is that the building process has become too long and difficult.As for the state of the commercial real estate sector today, Bacon said that as interest rates rise he sees a return to a “more normalized investment ecology.” That in turn will mean that investors are “going to have to work a lot harder to get some of t

Conditions in the lodging and hospitality real estate sector are healthy overall, but the combination of ongoing labor shortages, interest rate creep, and high construction costs are acting to soften margins, says Daniel Weede, partner in Morris, Manning & Martin’s hospitality, real estate, and real estate development & finance practices.Speaking on the REIT Report, Weede noted that “there's a lot of optimism in this industry, and I think, at least for the next several years, that's likely to stay.” However, “margins are thinner,” he added.Weede also discussed the potential for consolidation, noting that there will be likely be more merger and acquisition activity in the next 12 to 24 months than seen in the previous 12 to 24 months. “It's a healthy industry, but you've got some players that are doing really, really well, and others that are struggling a little bit.”

Phillips Edison & Co., Inc. is seeing a “really strong” operating environment across its portfolio, but the REIT also has a realistic view that there are going to be pressures weighing on the consumer from a range of macroeconomic factors, Chairman and CEO Jeffrey Edison said.Speaking on Nareit’s REIT Report, Edison noted that questions from investors at Nareit’s REITweek: 2022 Investor Conference last week revolved around the theme of potential disruption to the current environment from factors including higher interest rates and inflation pressure.“I think we have a realistic view that there are going to be pressures on the consumer from those macro events,” Edison said.

Commercial real estate continues to provide a solid hedge against inflation, a trend that has been borne out over multiple decades during periods when inflation has exceeded 4%, says Carly Tripp, global chief investment officer and head of investments for Nuveen Real Estate.Speaking on the REIT Report, Tripp noted that Nuveen research shows that compared to other asset classes, commercial real estate was the only one that emerged with an overall net positive return during those inflationary periods.“We always say real estate is an inflation hedge, and we're seeing that play through right now. So it's a good time to be in commercial real estate in my opinion,” Tripp said.

Consumers remain largely confident about their personal situations, despite a host of broader economic and geopolitical concerns, says Tom O’Hern, CEO of Macerich (NYSE: MAC). That sentiment is fueling sales and leasing volumes across the REIT’s portfolio of retail and mixed-use real estate.“The resiliency of the American consumer is amazing, and it is once again on display. Shoppers have come roaring back to our centers to shop with a purpose,” O’Hern told the REIT Report.During the first quarter, sales were 111% of what they were pre-COVID.“Despite the economic uncertainty regarding inflation that we haven't frankly seen in decades, higher mortgage rates, a very volatile stock market, and the war in Ukraine, American consumers remain largely confident about their own situations,” O’Hern said.