Institutional Real Estate, Inc. (IREI), in collaboration with Nareit, hosted an April 23 webinar addressing the latest trends in the real estate investment landscape. John Worth, representing Nareit, and Gina Szymanski, from AEW, shared their expertise on the performance of REITs in the first quarter of 2024. Mike Consol, editor of Real Assets Adviser at IREI, moderated the panel.
John Worth, EVP of research and investor outreach at Nareit, emphasized the recent market turbulence in relation to the fourth quarter of 2023 and its implications.
“April so far has been pretty tough on the public markets generally and on REITs in particular,” he noted, highlighting the impact of interest rate sentiment and macroeconomic fundamentals. Worth also stressed the significance of REITs’ ability to navigate through higher interest rate environments.
Gina Szymanski, managing director at AEW, echoed concerns about interest rates’ influence on REITs, noting: “Interest rates are the biggest factor right now for sure.” She emphasized the market's reaction to rising interest rates, indicating a divergence in performance relative to broader equity markets.
Despite challenges, both panelists provided strategic insights. Szymanski identified promising sectors such as towers, net lease, and gaming, emphasizing their resilience amid market shifts. Conversely, caution was advised for sectors facing supply-demand imbalances, such as self-storage and office spaces.
Worth highlighted the growing interest in REIT investments among U.S. households. He attributed this trend to increased accessibility and diversification benefits offered by REITs, reflecting a positive outcome of public policy initiatives.
Szymanski also emphasized the importance of capital allocation discipline in assessing the effectiveness of a CEO. She highlighted how goals like doubling EBITDA may not align with shareholder interests and stressed the need for strategic and accretive deals.
Consol discussed the impact of higher interest rates on capital allocation discipline, suggesting that higher interest rates could lead to more judicious decision-making regarding capital allocation, enforced by active management and the sell-side community.
Worth elaborated on the alignment of REIT CEOs’ interests with long-term shareholders through compensation structures. He also discussed the potential benefits of higher interest rates, such as increased deal flow and opportunities for REITs to grow their portfolios.
Szymanski discussed specific sectors, including health care and multifamily REITs. She explained the challenges faced by health care REITs due to varying property types and the impact of interest rates on different subsectors. Worth further elaborated on the multifamily sector, emphasizing the demographic factors driving demand.
The discussion also touched on the post-pandemic real estate landscape, with sectors like seniors housing and hotels facing ongoing challenges, while others like leisure travel experiencing a resurgence. The panelists also explored the potential for distressed real estate investment opportunities, with a focus on leveraging valuation gaps between public REITs and private real estate.