San Francisco and San Jose put up the second and third best job growth performances in the nation from 2010 to 2015, trailing only Austin. The high-paying tech industry, which is as important to the region as finance is to New York, has been the primary driver. As venture capital investment flooded into the Bay Area, the number of “unicorns” (VC-backed companies with valuations greater than $1 billion) multiplied rapidly.
REITs have historically been a tough sell with generalist investors. Several explanations exist, but higher-than-average earnings multiples have been the biggest impediment. Even though REITs have consistently generated superior returns, it has been easy to dismiss those results as a non-recurring phenomenon linked to the epic bull market in bonds. As a result, the path of least resistance for many diversified portfolio managers has been to overlook the niche.
The REIT industry is well-suited for M&A and current market conditions suggest the environment today is more conducive to combinations than at any point since 2008. Justin Brown of Green Street's Advisory & Consulting group highlights the potential catalysts for deal-making, and how companies can best position themselves to take advantage of new trends.
Dave Bragg explains Green Street’s outlook for the apartment sector in this 30-minute webinar. After six years of robust rent and asset value growth, how much longer will the apartment party continue? Dave discusses key points from Green Street’s 2016 U.S. Apartment Outlook, including recent changes in commercial real estate pricing and what the REIT and bond markets are saying about the direction of private market values.
The Bureau of Labor Statistics’ (BLS) inability to keep up with the hot market for home rentals is causing inflation to be underestimated and may contribute to a delay in the decision to continue to raise interest rates by the Federal Open Market Committee (FOMC). There is reason to believe that a flawed survey methodology is causing the government to underestimate housing inflation. Instead, data from the newly institutionalized single-family rental industry show that core inflation is indeed further above the FOMC’s 2% target than government data might suggest.
Until about 20 years ago, the structural makeup of the real estate industry dictated that debt, not equity; serve as the primary source of external capital. As a result, market participants grew accustomed to operating with far more leverage than is found in virtually any other industry. Given that today’s REITs have access to all the same financing options as other large corporations, and leverage is one of the few things over which management exercises complete control, it is unfortunate so few truly embrace the benefits of a low-leverage strategy.
Retail real estate investors are confronted with unique considerations when evaluating the property type. Since the Great Recession, investors have favored high-quality properties, as have tenants. The death of retail real estate has been overblown, however, as consumers continue to make their way regularly to malls and strip centers. The discussion highlights eCommerce threats, the lack of new development, urbanization, as well as expectations for occupancy, rent and NOI growth.
Commercial real estate values have never been higher. These record-high prices are providing interesting opportunities for companies that aren't in the real estate business – but happen to control large real estate portfolios – to pursue real estate value maximization strategies. Publicly traded retailers and restaurant chains are the companies most commonly cited as being well-positioned to enhance shareholder value through strategies such as REIT spin-offs. Darden Restaurants, Hudson's Bay Company, and Sears are three publicly traded companies that are using REIT spin-offs as a means to increase shareholder value.
Much of the rapid growth in the REIT industry in recent years is from REIT conversions, C-corps that control substantial amounts of real estate choosing to convert into REITs. These REIT conversions are occurring in property types that are less familiar to real estate investors – timber land, data centers, prisons, casinos, cell towers, and billboards. In a recent article for PREA Quarterly, Jim Sullivan, says he expects REIT conversions and REIT spin offs to ramp up in ’15 and continue to expand the boundaries of the types of assets that can end up on a REIT’s balance sheet.
The defined-benefit pension community has long been a tough sell when it comes to the merits of using listed REITs as a major component of their real estate allocations. The obvious common sense arguments favoring REITs have generally not been sufficient to offset concerns that REITs don’t really behave like real estate. Daily trading volatility and high correlations with equities over short time spans serve as fuel to those concerns, and evidence to support the REIT case was scant when REITs became a credible alternative twenty years ago. As a result, inertia has prevailed and private vehicles continue to dominate.
The active money management community has seen its alpha generation progressively diminish as the decades have passed. No single explanation exists for the diminished alpha, but the most popular seems to be that the information revolution has caused the market to become much more efficient. Computers, the Internet, 24-hour news channels, social media, and a slew of other innovations have completely altered the daily routine of most investors. If this democratization of information is truly the root cause of eroding alpha, then the days of active management may be numbered.
The ultimate intermediate- and long-term impact of cheaper oil on the US economy and its property markets depends largely on the answers to two questions: how low will oil prices go, and how long will prices stay there? Answers to those questions are as elusive as divining where interest rates might be headed, which means investors should not get caught in the trap of trying to add insight. Instead, it’s usually best to think that the prevailing price level for most assets serves as a decent mid-range estimate of where prices might be down the road. In other words, it is best to assume oil prices will stay range bound for some time and work from there.