As stocks rally, real estate investors try to pick winners

One boils his strategy down to “anything but malls”

Industrial REITs have been an outlier in 2020, returning nearly 27 percent (iStock)
Industrial REITs have been an outlier in 2020, returning nearly 27 percent (iStock)

Stocks have surged as the government and Federal Reserve has acted to stabilize corporate debt and sustain consumer demand. But returns for real estate investors have ranged from robust to wretched.

Major U.S. indices climbed during August, with the Nasdaq and S&P 500 reaching record highs Wednesday despite a slower than expected comeback in the labor market. Only 428,000 private-sector jobs were added to the economy last month, well below an expected 1.17 million.

While the Bloomberg U.S. REIT index remains down 10 percent in 2020, real estate asset performance has varied significantly by industry and region.

“This pandemic has hit the real estate industry on a ZIP code by ZIP code basis,” said Henri Kessler, a salesperson specializing in retail and hospitality investment at Marcus & Millichap.

“Industrial is resilient with last-mile fulfillment centers in all urban centers throughout the U.S.,” he said, adding that hospitality remains “one of the hardest hit asset classes during Covid.”

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Industrial REITs have been an outlier in 2020, returning nearly 27 percent, according to the Nareit index. Meanwhile, the value of hospitality REITs has fallen by half.

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Retail REITs are down 40 percent on the year, while office and residential REITs are down 17 and 12 percent, respectively, according to Nareit indices.

“At the height of Covid in April and March, REITs got hammered” said Alexi Panagiotakopoulos, co-founder of Fundamental Income, sponsor of the NETLease Corporate Real Estate ETF.

While industrial spaces have been buoyed by the pandemic, “you can’t service the whole country with e-commerce,” he said. “There is still need for on-demand goods.”

Panagiotakopoulos’s company is investing heavily in single-tenant, freestanding buildings including drive-through eateries, day care centers and health care offices. “Basically anything but malls,” he said.

In April, his firm raised $500 million from Brookfield Asset Management, whose subsidiary Brookfield Properties is one of the largest shopping mall operators in the U.S. The Brookfield Property REIT has lost almost half its value since the onset of the virus.

“There is insatiable demand for yield and income in the market right now, and that’s what real estate provides, especially publicly held real estate” Panagiotakopoulos said. “As more people start to retire, I expect real estate investments to become an alternative to bonds for as long as yield rates stay low.”

Contact Orion Jones at orion.jones@therealdeal.com

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