Pierre Rigaud, vice president of advisory and consulting at Green Street Advisors, participated in a video interview in conjunction with Nareit’s REITweek: Virtual Investor Conference (held June 2-4).
Rigaud said that although the REIT market has been down overall the past few months, the ultimate impact on property value in the long-term should be limited to short-term disruptions. For example, if a property lost all of its cash flow for 12 months, the impact to its value would only be about 5% to 6%.
Green Street has analyzed and qualified short-term disruptions in cash flow and potential long-term changes in behavior, Rigaud added.
“One sector is standing out to us [because] it defies any explanation that we have right now, and that’s apartments,” Rigaud said. The sector is down significantly, but its sharp decline cannot be explained by short-term disruption in cash flow alone, he added.
Regarding the industrial and retail sectors, Rigaud said increased online retail demand has been a headwind for physical stores and a tailwind for the industrial space. This could mean better short-term and long-term growth prospects for the industrial sector, but also the acceleration of the demise of lower-quality malls for the retail sector.
Rigaud added that the adoption of more work from home policies could be a headwind for office and lodging if businesses begin using these two property sectors less. On the flip side, that would also be a tailwind for tower and data center REITs.
He added, however, that it remains to be seen what policies companies will implement in the near-term as far as work from home and moving businesses online.
Rigaud also addressed the idea that publicly-traded REITs typically display more conservative balance sheets than the private real estate sector, and said that overall Green Street sees leverage as a non-issue in the REIT world during the pandemic.
"Good deals can be made during economic expansions, but great deals can be made during periods of disruption like the one we’re in right now,” he said. “Compared to most private companies, we believe REITs are very well-positioned right now to capitalize on these opportunities and potentially create outsized investment returns.”