Trends Watch: Real Estate Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks with Todd Voigt, Portfolio Manager, Ranger Global Real Estate Advisors.

What is your outlook for real estate investing? 

We believe that investment in global real estate securities today represents a positive opportunity for investors. Global listed real estate securities have delivered a 34% total return from the market bottom in October 2023, suggesting global real estate securities are in a bull market upward trend. Many factors will support continued positive performance for most real estate sectors in the years ahead including attractive valuation, positive earnings growth, landlord pricing power, generally subdued supply and potential for continued improvement in cost of debt and equity financing. 

History also supports the potential for continued appreciation. In the past, we have seen performance inflection points once the Fed halted rate hike policy; on average, U.S. REITs have returned 13.3% and Global REITs have returned 12.9% in the first six months after the Fed has stopped raising rates. We appear to be firmly at this point in the rate hike cycle. 

Further, the prospect of interest rate cuts by central banks provides potential further tailwind to listed real estate securities. Data provided by Morgan Stanley highlights that U.S. REITs historically generated a positive 1.6% return one year after the Fed cut rates, outperforming most other equity market segments (with most, negative).                  

Where do you see the greatest opportunities and why? 

Globally, we continue to find compelling investment opportunities in specialty real estate sectors such as data centers and cell towers (digital economy), manufactured housing communities, single family rental, student housing and health care real estate. These sectors are typically characterized by above-average landlord pricing power that results in high earnings pers share (EPS) and net asset value (NAV) per share growth.  

We also see positive investment opportunities in classic real estate sectors such as warehouse/industrial (e-commerce/logistics), multifamily, grocery-anchored shopping centers and triple-net lease real estate.  

Given current pricing, we believe the most attractive investment opportunity within the listed real estate space is via a global real estate portfolio because of the value and growth upside provided by international real estate relative to a U.S.-only portfolio. International real estate securities are priced at more attractive valuations (NAV discount, funds from operations [FFO] yield, dividend yield) with better growth (FFO/share growth), compared to U.S. REITs.2 A global portfolio exposes the investor to both the attractive U.S. real estate market with added upside potential from the international market.             

What are the greatest challenges you face and why?  

Real estate is a capital-intensive business, often, with material operating leverage. As such, the unprecedented scale of global interest rates increasing over such a short time frame created significant pain for many real estate owners. And as such, the global listed real estate universe experienced a bear market in 2022 and most of 2023. REIT management teams have been forced to make difficult decisions to reposition their portfolios and balance sheets via asset sales, dividend cuts and equity raising. These challenges remain for some companies, and we continue to price these challenges into our valuation estimates. However, we now see offensive equity capital raises globally from the top REITs/real estate operating companies (REOCs) that are funding the next expansion phase in the global real estate cycle. This early capital raising dynamic is very similar to what took place after the global financial crisis.      

What keeps you up at night?                                           

Geopolitics, inflation and interest rates: 

2024 is a year where we still have wars in Ukraine and Israel/Gaza, the future ramifications of which are difficult to quantify. 

Inflation globally has receded significantly. The outcome of where inflation will settle in the future remains questionable, and, as such, the same can be said of interest rates. Chairman Powell noted such uncertainty at Jackson Hole when he said, “The limits of our knowledge, so clearly evident during the pandemic — demand humility and a questioning spirit focused on learning lessons from the past and applying them flexibly to our current challenges.” 

Lastly, the outcome of the U.S. election in November is uncertain, and as such, the risk associated with China/U.S. relations, deficit spending and tariffs, to name just a few issues, remains unclear. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of Ranger Global or EisnerAmper.