The Real Deal New York

Japan-based REIT funds have dumped over half their US stocks: report

The move was prompted by decline in yields, fleeing investors and challenging fundraising
October 31, 2018 06:30PM

Empire State Building (Credit: iStock)

Why have shares of real estate investment trusts failed to perform well recently?

A mass offloading by Japan-based REIT investors may be the answer.

In 2016, REIT funds based in Japan that targeted the United States held 7 percent of the U.S. REIT market, or $68 billion, according to the Wall Street Journal.

Those funds have since sold off more than half of their shares, and are now valued at $31 billion, according to a new report from Green Street Advisors, the Journal reported. Now, the funds account for just 4 percent of the total domestic REIT market.

The shift was reportedly prompted by a decline in yields, fleeing investors and challenging fundraising efforts — all factors that have contributed to a 13 percent discount in the REIT sector.

The Japanese firms have a visible position in New York. Last year, Tokyo-based investment bank Daiwa Securities was reportedly a major shareholder in several U.S. REITs, including owning a 4.5 percent stake in SL Green and 1.96 percent in Empire State Realty Trust.

Daiwa took advantage of low interest rates after the financial crisis and chased high yields by partnering with New York-based Cohen & Steers — a firm that manages close to $35 billion in global real estate assets.

But following poor yield performances in recent years, Daiwa reportedly withdrew distributions on the two largest funds Cohen & Steers advises, according to the Journal. [WSJ] — David Jeans