Green Street Advisors

Heard on the Beach: The Sum of All Fears

The fallout from what promises to be a record-breaking plunge in GDP should have somewhat predictable impacts across property sectors. The outlook is complicated, however, by outsized effects on properties that serve as gathering spots and/or cater either to tourists or an older crowd. The market has had time to pass a preliminary judgment on how these risks add up. Less clear is whether the market has discounted the impact that cash flow disruptions/excessive leverage might have on REITs with less-than-pristine balance sheets. And there are plenty of them.

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Socially Distanced Pricing Behaviour Can Pay Dividends

Volatility has naturally spiked during this pandemic and is likely to remain elevated. Agile investors can take advantage of inter-sector property price movements that deviate substantially from their underlying historical economic sensitivity. The key is to focus on the GDP sensitivity of property sectors as well as the balance sheet position of individual PropCos as they make relative valuation moves. Those willing to make directional bets should use this information across and within sectors to generate outperformance.   

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Heard on the Beach: Where the Money Is

While stock picking in the real estate space garners a lion’s share of attention, superior sector allocation offers at least as much potential alpha. The number of investable property sectors has nearly doubled, and non-core sectors now comprise more than half the market. Instead of placing bets based on factors where one is unlikely to consistently outsmart the market (e.g., changes to the economic outlook), Green Street's Sector Allocation framework focuses instead on the long-term risk-adjusted return prospects of each property type. The results have been impressive in both the private and public markets.

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Industrial Supply is the Real Surprise

Green Street’s 2019 U.S. Industrial Outlook outlines our expectations for the industrial sector over the next five years in terms of operating fundamentals and asset values. The report’s most significant takeaway is that the sector’s strong performance and outlook is not only driven by exceptional ecommerce-fueled demand, but also by rising obstacles to development that have driven industrial land values and overall construction costs higher.

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Non-Core Real Estate Dominates: There Are a Lot More than Four Flavors

Green Street’s Mike Kirby explains how non-traditional real estate sectors (e.g., health care, self storage, data centers, etc.) have shown tremendous growth over the past decade, and these non-core property types offer higher prospective returns going forward.

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Relative Valuation in Public and Private Real Estate Markets: Analysis Using Green Street Atlas

The Green Street Atlas grading system allows a systematic way to assess relative growth across markets, submarkets, and zip codes. At today’s pricing, New York office looks 20% overpriced relative to major West Coast markets, and Equity Residential (EQR) and Essex Property Trust (ESS) offer the best long-term growth among the top Apartment REITs. Read More...

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