Nareit's Reit Report Podcast

Private equity funds, endowments, and large institutional investors will continue to have a large appetite for commercial real estate given the current inflationary environment and geopolitical uncertainty, says John Sullivan, chair of DLA Piper’s U.S. real estate practice and co-chair of its global real estate practice.Speaking on the Nareit REIT Report, Sullivan said that asset classes with the ability to reprice themselves due to short lease cycles, such as multifamily and industrial real estate, “are viewed as a good bet because you can raise your rents to… at least keep up with inflation.”Sullivan highlighted some of the findings of DLA Piper’s 2022 State of the Market survey, including that respondents see logistics, multi-family, life science, and data centers as offering the most attractive risk- adjusted returns for the next 12 months.

Global investment in U.S. real estate is at its strongest-ever level, with non-core markets and multifamily and industrial asset classes continuing to lead the charge in terms of investor interest, according to Gunnar Branson, CEO of AFIRE, the association for international real estate investors focused on commercial property in the U.S.Speaking on the Nareit REIT Report, Branson noted that while there are certainly lots of concerns surrounding global events, “real estate investing is on a terrific pace in the first quarter.”The top property asset class for institutional investors from around the world continues to be multifamily, Branson said, followed by industrial real estate. And while the office asset class will definitely continue to exist, questions remain about which offices are going to succeed, and which will have to rethink the level of capital investment that will be required to compete, he added.

A skills gap within the real estate industry means that to attract talent, firms must adopt human capital strategies that align with changes in employee expectations, says Gemma Burgess, president of Ferguson Partners.Burgess will become CEO of Ferguson, a global professional services firm, on June 1. Speaking on the REIT Report, Burgess attributed a skills gap within the real estate industry to the fact that many mid-level professionals left the field in the wake of the global financial crisis. “We’re definitely facing a missing generation in our industry. That’s suddenly making the succession work more challenging,” she added.Meanwhile, Burgess pointed to changes that have occurred in the workplace. “People want to work in different ways today. They want to work more flexibly. They certainly want to work within an environment where they feel like they belong and that there’s a culture that they believe in, and they can see a future for themselves.”

Although a return to the office has started in earnest, it will take the rest of 2022 to take hold, and even longer before clear patterns of usage emerge, says Julie Whelan, global head of occupier research at CBRE.Speaking on the REIT Report, Whelan said it will likely be 2023 “before we can really start to hang our hat on trends that we can say are stable [in order] to build assumptions about what new work patterns are going to look like.”Whelan described current office usage as “muted…but the good news is that it’s picking up.” Some of the Southern states have seen a higher return to office rate, although in the past week New York and Washington, D.C. actually saw some of the biggest gains, she noted.

Angel Oak Mortgage, Inc . (NYSE: AOMR) CFO Brandon Filson sees the non-qualified mortgage (QM) loan segment reverting over time to its historical level of about 10% of the overall mortgage market, compared to 2% today, providing the mREIT with significant opportunity for growth in the years ahead.Speaking on the REIT Report, Filson noted that 10% of the overall market would be about $200 billion, versus about $25 to $50 billion today.Angel Oak Mortgage, which went public in June 2021, focuses on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S. mortgage market. Non-QM loans are not backed by government agencies and are aimed at homebuyers unable to meet the strict criteria of a qualifying mortgage in areas such as income or personal debt.

Business models are central to corporate performance and wealth creation, and even the most complex models can be reduced to six basic variables, says Chris Volk, a veteran REIT executive, business leader, and author.Speaking on the REIT Report, Volk discussed his upcoming book, The Value Equation, which will be published on May 10.Volk also discussed his career, during which he introduced and led three public companies. One of those was STORE Capital Corp. (NYSE: STOR), his third net lease iteration, formed in 2011. Combined, the companies provided more than $20 billion in growth capital to thousands of businesses, he said.

Capital flow of non-traded alternative investments could grow to a $250 billion a year market within the next five years, with early 2022 data already pointing to a record-breaking year for fundraising in the sector, according to the Institute for Portfolio Alternatives (IPA).Speaking on the REIT Report on April 18, Anya Coverman, SVP, government affairs and general counsel at IPA, said the outlook for 2022 is “incredibly bright. You have Blackstone, Starwood, and other large asset managers leading with a blockbuster year.”Citing research data from Robert A. Stanger & Co., Coverman said sales overall are topping $19.1 billion in January and February. “So, this is already on pace to beat last year's record tally of $70 billion.”

Outside of the industrial sector, residential real estate in the United States “probably has the best supply-demand backdrop in global real estate right now,” says Ryan Dobratz, portfolio manager of the Third Avenue Real Estate Value Fund.Speaking on the REIT Report, Dobratz said he sees “a significant amount of demand for single family housing, in particular within more affordable Sunbelt markets, at the same time that supply is very, very low.”Companies active on the home building side are seeing benefits, Dobratz said, including timber REITs. Timber REITs are going to be able to generate much higher levels of cash flow and ultimately pay much higher dividends, given residential market conditions, he noted. “Timber is also a terrific place to be invested in an inflationary environment.”Dobratz pointed to the war in Ukraine, supply chain issues, and high inflation as issues of macro concern right now. At the same time, he noted that “commercial real estate has historically been a great place to park capital

Proposed Securities and Exchange Commission (SEC) rules to enhance and standardize climate-related disclosures for investors are just the first step in terms of finding the right balance of what's required from a regulatory perspective, said Uma Pattarkine, a senior investment strategy analyst and global ESG lead for CenterSquare Investment Management.Pattarkine told the REIT Report that the SEC proposals were “a lot more robust than I had originally anticipated,” given the level of initial disclosure, and require REITs to be able to get a lot of that data at the property level.Many REITs, Pattarkine said, are already committed to science-based targets. For such companies, the SEC proposals will not impose any additional burdens. However, for REITs that have been lagging in terms of collecting data, “it's going to take a lot of work for them to get to what the SEC might require from a disclosure perspective.”

Laurie Baker, COO at Camden Property Trust (NYSE: CPT), says the importance of gender equity and diversity within the commercial real estate industry has been amplified as a result of the pandemic.Speaking on Nareit’s REIT Report, Baker said that while more women are rising to key leadership positions across the industry, the pandemic “in many ways stalled the progress that was being made because they [women] were disproportionately forced to choose between careers and caregiving for their family.”At the same time, Baker said, the pandemic also presented opportunities in the form of new forms of flexibility and “resetting definitions of career satisfaction and what company success and personal success is.”Baker, who was named COO in late 2021, also reflected on her more than two decades at Camden, including her work implementing pioneer revenue management technology as well as helping to create Camden’s first investment funds.

Dallas Tanner, president and CEO of Invitation Homes Inc. (NYSE: INVH), says the REIT’s $250 million investment in Pathway Homes will expand choice in the housing market by helping first-time homebuyers who lack access to traditional avenues to home ownership.Speaking on the REIT Report, Tanner said Pathway, launched in partnership with Regis Group and Fifth Wall, is an opportunity to support a growing segment in the marketplace—individuals that want a lease option purchase agreement or the chance to build equity in a home over time.Pathway works directly with customers to identify and purchase a home, offering them the opportunity to first lease and then buy the home outright at a future date. In addition to investing in the homes and technology platform for Pathway and its real estate fund, Invitation Homes will provide maintenance and other services to all Pathway homes, enabling the REIT to broaden its third-party property management services.

Committed leadership and statements backed up by substantive action are key to ensuring that organizations make progress on diversity, equity, and inclusion (DEI), according to Kira Banks, co-founder of the Institute for Healing Justice and Equity at Saint Louis University, where she is also an associate professor in the department of psychology.Speaking on the REIT Report, Banks notes that since George Floyd's murder in 2020, more leaders in business are understanding that DEI is core. “They understand it is a part of the work of doing business nowadays.” However, the work won’t be sustainable unless leadership is fully committed, Banks says. “If leadership is not on board, it gives other people an opportunity to opt out.”Banks also says that more organizations are understanding that symbolic statements are insufficient and must be backed up with action. “Those sorts of symbolic gestures in some ways can do more harm than good if they're disingenuous, if they're not followed up by anything sub

Anticipated interest rate increases of about one and a half percentage points by year-end will still create a “very favorable” environment for commercial real estate, says Nareit Senior Economist Calvin Schnure.Speaking on the Nareit REIT Report, Schnure noted that it is “appropriate” for the Federal Reserve to be raising interest rates at this point and removing the stimulus that was put in place early in the pandemic.Schnure noted that goods inflation has been at about 12% over the past year, while service price inflation has slowed somewhat. “This suggests that we're not having a long- term problem from wage pressures with inflation. I do expect inflation to slow down, mostly in the second half of this year,” he said.REITs, Schnure said, perform better than most other sectors during periods of moderate to high inflation because they represent a real asset that own properties whose values rise with prices and with leases that can respond to changing market conditions.

Transaction activity in the hotel sector this year is expected to be “incredibly strong,” with robust pricing continuing in the luxury resort segment and the start of a recovery in business transient and group demand, according to Kevin Davis, CEO of JLL Hotels & Hospitality, Americas.Speaking on the REIT Report, Davis noted that JLL has more than $12 billion in its U.S. hotel sales and financing pipeline for 2022, the highest level since 2015, which was already a record year from a transaction volume perspective. If JLL is a proxy for the market, “my expectation is that you'll see a lot of transactions this year.”Davis said anticipated gains for 2022 follow a particularly strong year for the industry in 2021. This was fueled by the large amount of capital that had aggregated on the sidelines to take advantage of potential distress in the sector—which never materialized—as well as pent-up consumer demand for travel.

Investing in the farmland sector offers stability, strong income, good total returns, and inflation hedge characteristics, among other benefits, according to Martin Davies, global head of Nuveen Natural Capital.Speaking on the REIT Report, Davies also noted that “one very compelling theme is not being correlated to the economic cycle. Through the COVID-19 pandemic we’ve seen no dip-off in farmland returns. As we’ve seen historically through other economic crises, such as the global financial crisis and the tech bubble, farmland returns stayed strong through that period.”Davies noted that while land values historically have been a function of what was actually produced, going forward there could be increased opportunities to monetize some of the additional benefits that exist, including water quality, biodiversity, and carbon sequestration.

The data center sector is playing a significant role in getting utilities to increase the use of renewables across the electricity grid and bring about the larger goal of a 90% carbon-free electricity system by 2030, according to Breana Wheeler, director of operations at BREEAM USA.Speaking on the REIT Report on Jan. 24, Wheeler noted that the focus on decarbonizing the grid is “really critical, because while reducing energy consumption is important, data centers specifically will always face significant challenges to either build enough renewables to cover total usage or build close enough to an abundant supply of renewable energy.”Wheeler also discussed how BREEAM’s relationship with the data center sector has developed over the years, whether the general perception of data center energy consumption fits the reality, and how the data center sector is having a positive knock-on effect in terms of making other industry sectors improve their sustainability performance.

Prologis, Inc . (NYSE: PLD) Global Head of Capital Deployment Dan Letter says ongoing efforts by companies to rebuild inventories to pre-pandemic levels, and a focus on resiliency rather than efficiency in the supply chain, will create multi-year tailwinds for the REIT.Speaking on the REIT Report, Letter noted that inventory to sales levels are 10% below where they stood pre-pandemic. “Our customers are just trying to get back to the pre-COVID levels, let alone build that new safety stock on top of that,” he said.Letter said he expects supply chain challenges will persist into 2023. Vacancy rates are at unprecedented lows and space in Prologis’ markets is effectively sold out, he added.Prologis continues to see broad based demand in markets around the globe, according to Letter. The REIT is planning to start over $5 billion in developments this year, and also expects to make about $1.5 billion in acquisitions. In addition, Prologis’ land portfolio will allow it to develop over $26 billion of new product.

With a footprint heavily weighted toward the Sunbelt, plus an expanding portfolio of necessity retail assets, Michael Weil, CEO of American Finance Trust, Inc. (Nasdaq: AFIN), says the REIT is well-positioned for 2022 and beyond.Speaking on the REIT Report podcast Jan. 12, Weil said the company’s proposed $1.3 billion acquisition of shopping center assets from subsidiaries of CIM Real Estate Finance Trust, Inc., combined with its upcoming rebranding to The Necessity Retail REIT Where America Shops, spells out its clear focus on a particularly active corner of the retail sector.Since the REIT’s listing on Nasdaq in 2018, it has focused on single tenant and multi-tenant retail, with the latter in the form of open-air shopping centers.“We think it's an incredibly viable, strong asset class and it creates a portfolio that has terrific underlying strength,” Weil said. Over the last four or five years, as the REIT has continued focusing on necessity retail, it has grown from about $3.4 billion of assets to a p

The REIT industry is closing out 2021 in a position of strength, with ample financing available, brisk merger and acquisition activity, high and rising rents, and elevated asset levels, according to Evan Hudson, partner and real estate capital markets legal expert at Stroock.“The credit markets are incredibly active, they’re liquid, they’re deep,” Hudson said. He noted that in addition to common and preferred equity deals, largely through at-the-market (ATM) offerings, his firm is also seeing a high level of joint venture activity.Following a productive year for M&A deals in 2021, Hudson expects all property sectors to be active in 2022. “Even though we have price agreement (between buyer and seller) and the price is very high, a lot of deals are still happening.” He stressed that what is new in the current environment is the entrance of “colossal” non-traded REITs with hefty amounts of cash to deploy.

The economy will enter 2022 on a firm footing and should be able to withstand a variety of challenges that have emerged in recent months, providing a backdrop for continued solid REIT performance, says Nareit Senior Economist Calvin Schnure.Schnure noted that the economic mood has shifted over the last couple of months, reflecting the new Omicron COVID-19 variant, supply chain issues, price spikes, and labor shortages, among other issues.“Overall, though, the economy is quite sound. It has a lot of strength and should be able to handle these challenges pretty easily in the year ahead,” Schnure said, particularly since many of the current challenges are related to the pandemic and should ease as COVID cases come down.As for the hot topics of inflation and interest rates, Schnure pointed out that inflation is still very connected to short-term bottlenecks. “We’re going to see continued concern about inflation, which the Fed is going to be watching closely,” he said, with gradual increases in interest rates like