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The Real Deal Los Angeles

Specialty REITs record big gains and attract big dollars

The real estate investment trusts targeting property types like data centers are outperforming many traditional REITs
July 19, 2018 02:00PM

Servers in a data center, one of the sectors where specialty REITs are thriving

Speciality real estate investment trusts are posting strong gains and attracting an increasing amount of investment dollars.

These nontraditional REITs home in on particular property types, like data centers and self-storage warehouses. Many have posted double-digit growth in so-called funds from operation, a general measure of cash flow into the trust. That compares to 2.5 percent to 3 percent growth in the broader REIT market, according to National Real Estate Investor.

Green Street Advisors counts 40 nontraditional REITs in that category. Those have outperformed the National Association of Real Estate Investment Trusts Index by a wide margin each year over the last five years.

Those types of specialized REITs have been around for more than 20 years, but became more popular following the recession.

Specialization opens up an investor to fluctuations in a given market and some sectors have not done as well as the wider market, like private prisons and single family rentals.

Some traditional REITs see diversification as a better path, particularly those with significant retail holdings as they try to divest from the sector and insulate themselves from recent losses.

According to Green Street, more specialty REITs will enter the market in the coming years. [NREI] — Dennis Lynch