A show about the latest news and developments in REITs and real estate investment.
REIT M&A Boosted by Price Recovery, Attractive Financing, & Renewed Activist Pressure
Total REIT M&A activity through the third quarter of 2021 has already surpassed levels seen in 2019 and 2020, boosted by price recovery, attractive financing, and renewed pressure from activist investors, says Blake Liggio, partner in the real estate industry group of global law firm Goodwin.“Pricing for deals has improved coming out of the pricing troughs that we saw in many sectors during the pandemic… over the last two years it has been more challenging for boards to justify a sale of the company,” Liggio said. The current pace of deal volume, supported by low interest rates and attractive financing, is likely to remain intact through the end of the year, he added.The industrial, self-storage, data centers, multifamily, and life science sectors continued to see M&A activity from the end of 2019 and largely throughout 2020, Liggio said. In 2021, other sectors such as retail and office, have regained activity or begun to think about entering into a transactional strategic review.
Pebblebrook CEO Says Lodging Sector Showing a Varied Recovery Path
The hotel and lodging sector is showing a varied recovery, as it outperforms 2019 levels in some areas but struggles in others, according to Pebblebrook Hotel Trust (NYSE: PEB) Chairman, President, and CEO Jon Bortz.Speaking on Nareit’s REIT Report, Bortz noted that strength in the market has tended to be concentrated in resorts, particularly drive-to resorts, which are often achieving higher occupancy and rates than seen in 2019.The struggles, on the other hand, have mainly been in the urban environment, Bortz said. He noted that in San Francisco, Pebblebrook’s revenue is still down 80% from 2019 levels, while in Washington, D.C., revenue is down 70% over that same period.Bortz said signs of recovery in business travel are already evident, “but it’s a very slow recovery.” He said business transient travel appears to be about 40-50% back, while business group travel is about 30-40% back.
Real Estate Industry Must Tackle Carbon Reduction Collectively or Face Government Mandate
The real estate industry needs to collaborate and embrace technology as it works to reduce carbon emissions or else face having external mandates forced upon it, says Peter Gajdoš, a partner at venture capital firm Fifth Wall.Speaking on the Nareit REIT Report, Gajdoš, who co-leads Fifth Wall’s climate technology investment team, noted that although tackling carbon emissions will take decades, the real estate industry should see it not as a threat but as an opportunity to cooperate. “Let’s work together, let’s find solutions because otherwise I believe the sector will be mandated to fix the carbon problem and I’d rather see the sector proactively working on this and finding solutions ourselves rather than a top-down approach from the government,” Gajdoš said.
Prologis Addressing Heightened Need for Logistics Labor and Talent
Increased customer demand for logistics labor, combined with rising worker expectations around training and career opportunities, has led Prologis, Inc. (NYSE: PLD) to expand its logistics training program to six major logistics hubs, with plans to add programs in nine additional national markets by the end of 2021.Speaking on Nareit’s REIT Report, Steven Hussain, vice president of workforce programs and community relations at Prologis, explained that the REIT’s Community Workforce Initiative (CWI) training program launched in 2018 in response to conversations with Prologis’ largest customers that identified labor and talent as their number one pain point. At the same time, Prologis’ community partners were looking for “on ramps” to well-paid jobs for individuals they served.Since then, the labor market has become even more challenging, Hussain explained. “It’s incredibly competitive and incredibly challenging to recruit right now and worker concerns around COVID-19 persist and safety is top of mind. At the same time, worker expectations around ongoing education, training, and career paths are also rising, so there’s a lot that customers and employers are having to do to adjust to this new reality,” he said.
Farmland Real Estate Offers “Great Hedge” in Balanced Portfolios: Green Street
Farmland real estate is one of the nation’s largest commercial real estate sectors and its low risk and volatility profile makes it a “great hedge” within a balanced portfolio, says Pierre Rigaud, vice president, advisory and consulting, at Green Street.Speaking on the REIT Report, Rigaud noted that the farmland real estate sector is valued at $2-3 trillion. Institutional ownership in the sector is only about 1%, compared with 5-15% in most other real estate sectors. The two key crops in the sector are row crops and permanent crops, with row crops having a lower risk profile than permanent crops.Rigaud said farmland real estate and how it compares to other asset classes is not well understood by investors at this time. Some of the key attributes of farmland real estate include its lower obsolescence risk, lower fungibility risk, and lower capex burden.Population growth has outpaced the supply of arable land, Rigaud noted, resulting in land appreciation. As a result, “U.S. farmland has had a very strong track record of delivering relatively attractive returns over long holding periods.”
Real Estate Fundamentals, Supported by GDP and Job Growth, Look “Very Favorable”: Portfolio Manager
The landscape for real estate fundamentals looks “very favorable” going forward, supported by GDP and employment growth, according to Lowell Bolken, portfolio manager of the Securian AM Real Asset Income Fund and Real Estate Securities Fund.“We think employment will be strong as job openings are still above the actual unemployed population right now,” Bolken told Nareit’s REIT Report.He noted that in terms of REIT valuations, it’s a mixed picture. However, “we're very confident where the economy is going in terms of real estate and other sectors…growth is still in the offing.”Bolken, meanwhile, noted that while inflation might not last longer term, “it's less than transitory.” As a result, Securian is positioning itself for short term inflation by focusing on assets with shorter term leases such as apartments, self-storage, and hotels, while de-emphasizing the net lease sector.