Industry Performance

Cambridge Associates reports that private equity real estate funds have underperformed listed equity REITs by 3.91 percentage points per year over the past 25 years.

The listed REIT industry continues to grow and prosper. Total Funds from Operations (FFO) of listed Equity REITs rose 7.9 percent in the second quarter, to $15.6 billion, according to the NAREIT T-Tracker®. 

Value-oriented and momentum-oriented investors look to take advantage of different opportunities: value investors look for stocks selling well below normal, while momentum investors look for stocks that have done well recently.  Both opportunities can be found today among sectors of the REIT market.

Nonfarm payrolls rose 209,000 in July, signaling that the economy has good momentum at mid-summer, while office jobs in Gateway Cities have rebounded in recent months.. 

Appraisal-based valuations in private real estate markets are being systematically reported at levels that exceed those of reported transactions—in which case there may be more valuation risk in private equity real estate markets than many institutional investors realize.

While valuations are somewhat different across different segments of the REIT industry, there is a “wealth of undervaluation” in REITs today—and investors certainly should be paying closer attention.

Proposal would align REIT funds with GICS.

Over the first six months of 2017 the broad U.S. stock market had outperformed the REIT market, with the Russell 3000 Index showing total returns of 8.93% compared to just 5.43% for the FTSE NAREIT All REIT Index.  Dig just a little deeper, though, and this turns out not to be a “stocks vs REITs” story at all.

Recently, office properties in many secondary markets have enjoyed greater demand and rising occupancy rates relative to office markets in gateway cities.