Where do REIT'S go from here ?

[Spekulatius]

I would think that this can go easily for 7% cap rate. After all Tesla is not going anywhere and since this located in an upcoming area, why not?

 

We have seen Walgreen leases for 5.X% Cap rates and I would rather own this one for 7-8%

[Gregmal]

37 minutes ago, Spekulatius said:

I would think that this can go easily for 7% cap rate. After all Tesla is not going anywhere and since this located in an upcoming area, why not?

 

We have seen Walgreen leases for 5.X% Cap rates and I would rather own this one for 7-8%

The pricing scenario would largely come down to something like would you rather own the Walgreens with a 7 year duration in DC at a 5.5 cap or the Tesla parcel at a 5 cap in Palm Beach? Or a Tesla in Washington state at 7%? And the institutional investor largely looks at the NOI, then the time left on the lease and potential renewal term, then the credit quality, then the location. 

 

Theres plenty of people who "get it", its why they dont give em away, but those are typically where the opportunities and real alpha come from. Check out grocery anchored strips in net inflow MSAs. NYC properties trading hands at 4 caps but holding air rights and redevelopment opportunities galore in the 90s and 2000s are a prime example. Those made more money for folks despite shitty NOI and irrelevant tenant quality vs those who bought corporate guarantee Staples and Morgan Stanley office leases. The CVS/Walgreens triple net, if they leave you are typically fucked. If Tesla leaves in Washington state, IDK you probably got some work to do. The one in Palm Beach...I'd almost guarantee theres gonna be no shortage of developers bidding for that site. 

 

Dirt/location and optionality beat NOI and term, at least thats how I viewed it. Its why those shitty outparcel for QSR are 4-5 cap all day if theyre in a good MSA or near a Walmart/Costco/HD.

 

Ill happily take less of the NOI/term/credit worthiness in exchange for the location optionality. Thats your upside. But that stale status quo for a long time was "its a bond"? Its not. Its why office REITs cant be given away and even if you own some great location in NY/Boston/DC/SF, that "what can you do with it afterwards and how easy will it be" question right now is biting a lot of people in the ass. If FB can leave Hudson Yards, who cares about a 15 year office lease? Its why class C mall is worthless, class B semi interesting and class A mall is still king. 

 

So for the Tesla in Palm Beach...I'd pay high 3 or low 4 cap on that before I considered a Walgreens in DC at 5-6 or an office leased to ABC in LA at 8 cap. Nevertheless theres folks who prefer the nonexistent 5% treasury to any of them. When that treasury expires Ill tell you with ease who has the best investment. Probably the WPB Tesla, LA Office, then the Walgreens and then the treasury, in that order. 

[rohitc99]

@Gregmal

have you explored platforms like fundrise ? any views on it ?

https://fortune.com/2022/07/09/rental-property-homes-recession-proof-investment-fundrise-ben-miller/

 

thanks in advance

[changegonnacome]

1 hour ago, Gregmal said:

Essentially if your value is not in the land you probably don’t want to touch it.

 

Not a REIT guy - but this strikes me as a very very important insight.....that as @Gregmal points out gives you an edge versus Brad, Chad & Tad doing excel backflips eating their Sweetgreen salads in their cubicles waiting for their boss to leave so they can go home    

[Gregmal]

1 hour ago, rohitc99 said:

@Gregmal

have you explored platforms like fundrise ? any views on it ?

https://fortune.com/2022/07/09/rental-property-homes-recession-proof-investment-fundrise-ben-miller/

 

thanks in advance

Ive looked at a few and been referred several times to crowdstreet. But overall I have never been able to get comfortable with all the variables. Too much stuff reliant on trusting random 3rd parties. RE, especially non traded has always been ripoff central as far as fees and shady characters goes. So without any supporting evidence with respect to these sort of platforms specifically, I'd need an awful lot of it tot he contrary to convince myself this is not setup in a way where the risk skews to the individual and the reward to the guy taking your money. At least with private securities where you pay 10% commissions you can see it all in front of you and know that you'll probably get an IPO at some point. Its wayyyy too easy to goose individual real estate transactions. 

[Ulti]

 

 

https://www.miamiherald.com/news/business/real-estate-news/article269396722.html

U.S. government to back mortgages of $1M in priciest areas. How about South Florida?

 

[Gregmal]

6 minutes ago, Ulti said:

 

 

https://www.miamiherald.com/news/business/real-estate-news/article269396722.html

U.S. government to back mortgages of $1M in priciest areas. How about South Florida?

 

$1M gets you a 1200 sq/ft 2/2 IF you're lucky and buy something older and somewhat fringe.

 

Its still the hardest thing Im coping with in trying to find a place to buy so I can move down there. My whole life, the benefit to Florida and whatnot in terms of housing is that on top of all the no brainer benefits...you could buy a $1M Northeast home for like $500k down there. Now That $1M Northeast home is like $850k in the Northeast and in Florida its $1.2-5M

[Ulti]

I haven't checked lately .. is that what your finding around the panhandle.....

I remember almost buying a house in Grayton beach for around 300,000 to 400000 in 2008......(And yes I'm an idiot). I have buddies building below Amelia

a 3-2 for about 875000.

[Gregmal]

4 minutes ago, Ulti said:

I haven't checked lately .. is that what your finding around the panhandle.....

I remember almost buying a house in Grayton beach for around 300,000 to 400000 in 2008......(And yes I'm an idiot). I have buddies building below Amelia

a 3-2 for about 875000.

Panhandle is a somewhat different market. Building in general is more expensive simply because of the location. Existing homes are coming down big from ask, but asking prices got retarded. Real market sales prices are still easily double pre COVID, so still hardly cheap. South Florida, especially around Miami is like the new Vancouver. 

[Ulti]

9 minutes ago, Gregmal said:

South Florida, especially around Miami is like the new Vancouver. 

Good for us.

[Spekulatius]

15 hours ago, changegonnacome said:

 

Not a REIT guy - but this strikes me as a very very important insight.....that as @Gregmal points out gives you an edge versus Brad, Chad & Tad doing excel backflips eating their Sweetgreen salads in their cubicles waiting for their boss to leave so they can go home    

This has always been true in real estate, whether you buy a home or commercial real estate. The only thing appreciating is the land / dirt. Almost everything else depreciates.

[Gregmal]

4 minutes ago, Spekulatius said:

This has always been true in real estate, whether you buy a home or commercial real estate. The only thing appreciating is the land / dirt. Almost everything else depreciates.

It is, but its not always that simple. A city office building in a vacuum could easily be converted to residential units. Land there is gold. BUT whats it cost and how long does it take? Wanna gander what you gotta go through to get a crane setup in NYC? Its why people get SPG wrong. Land is great. Locations A+, period. But "its a mall". Theres truth to that. Repositioning a mall is mighty expensive. BUT, most of their malls represent a small percentage of their actual land. Also, some anchors are actually doing well and the anchors that arent, BAM/SPG already own, they're not going dark anytime soon. They'll be mixed use due to location, way faster than people think. Which is why SPG still commands A rating on credit and can borrow at will vs other office and mall peers who cant get financing or pay 10%.  VNO? Not so much. VNO I'd argue, on the whole, has way better and higher value land than SPG. So its true generally, but with nuances. And its always true in the face of the Wall Street created bond product sub notion of NOI/term+credit tenant. Most of the REIT personalities just totally ignore this. No better example than Brad Thomas. Ugh gee, whats NOI? Whats net debt/NAV? Ah, lets slap an AFFO multiple on and see where it stands relative to peers. Wrong.

[Spekulatius]

The thing I really hate about Reits is that the market prices driven by "yield junkies". Some of them are better than others, but there are a few that ignore almost everything else, they just look at yield and dividend growth. As with everything, it does matter how the sausage (NOI/ FFO) is made. That also leads to management teams chasing these metrics that these yield junkies are looking at, which can be a recipe for disaster.

 

Then you have myopic markets (because of above investor base), dependency on credit markets ( to refinance), so there are a lot of factors other than underlying property that matter. For these reasons, I don't really like Reits in general any more.

Edited December 2, 2022 by Spekulatius

[Gregmal]

Totally agree. I personally hate REITs, not even joking. Prefer the JOE/HHC C corp structure if anything. Mega large cap REIT is boring and only on occasion get priced interesting enough to warrant investing. Small and sub scale you need to make sure the asset base and capital structure allows an outside party to take you out. So many ways you can get fucked in Maryland. 

[tede02]

10 hours ago, Gregmal said:

 Ugh gee, whats NOI? Whats net debt/NAV? Ah, lets slap an AFFO multiple on and see where it stands relative to peers. Wrong.

 

Greg, you crack me sometimes! LOL. Good stuff. 

 

I completely know what you mean. A lot of REIT managers (especially non-traded), peddle so much B.S. I get tired of it. It reminds me a lot of fracking companies before many blew up in 2016. 

 

 

[Ulti]

recorded in November

https://podcasts.apple.com/us/podcast/kathleen-mccarthy-on-real-estate-investments/id730188152?i=1000589659002

Global co-head of Blackstone RE

 

[no_free_lunch]

REITs are really starting to get their prices hammered.  Apartment ones in particular seem very compelling to me given their relative safety.   I think either we have inflation and rents move up to offset the rate bump or we don't have inflation and rates move back down.  Either way, this seems a decent entry point for the space.

 

I like Avalon Bay (AVB) an apartment REIT with properties mainly on the east/west coast.  They have a long history of slowly raising the dividends (not all REITs have this kind of history) and are not particularly levered.   They have also traded substantially higher (up to 60%) from where they are today.

 

Does anyone else have a fav REIT?  Are there any stand out REITs with a secret sauce that manage to get alpha over their peers?

Edited January 6, 2023 by no_free_lunch

[Dinar]

32 minutes ago, no_free_lunch said:

REITs are really starting to get their prices hammered.  Apartment ones in particular seem very compelling to me given their relative safety.   I think either we have inflation and rents move up to offset the rate bump or we don't have inflation and rates move back down.  Either way, this seems a decent entry point for the space.

 

I like Avalon Bay (AVB) an apartment REIT with properties mainly on the east/west coast.  They have a long history of slowly raising the dividends (not all REITs have this kind of history) and are not particularly levered.   They have also traded substantially higher (up to 60%) from where they are today.

 

Does anyone else have a fav REIT?  Are there any stand out REITs with a secret sauce that manage to get alpha over their peers?

My favorite REITs at today's prices are: AIV, CLPR & VRE.  If the price ever gets to $50, I will load up the truck on ELS - Equity Lifestyle

Edited January 6, 2023 by Dinar

[no_free_lunch]

Dinar, these REITs that you suggest are certainly more in the spirit of the site.  Clearly more reward potential than say AVB.   However, it's hard to wrap my simple mind around them and assess the possibilities.   I will take this in consideration and try to dig into them as I have time.

Edited January 6, 2023 by no_free_lunch

[Gregmal]

I think it’s hard owning a REIT that doesn’t have a clear and easy path to getting sold. 

[Dinar]

28 minutes ago, no_free_lunch said:

Dinar, these REITs that you suggest are certainly more in the spirit of the site.  Clearly more reward potential than say AVB.   However, it's hard to wrap my simple mind around them and assess the possibilities.   I will take this in consideration and try to dig into them as I have time.

There are long discussion threads on each one of these names and there are also VIC write-ups on all three.

[frommi]

I hold positions in EPRT,SRC and AMT. I think NNN and the Tower-REIT's (CCI,AMT) are the best REIT's to own, because they have the most staying power, easily survived the GFC and Covid situations without dividend cuts or problems with tenants. Especially the tower REIT's are very interesting because they can get high ROI's when a tower is leased to several different wireless providers. I think that they capture most of the value of wireless connections, while AT&T, Verizon etc. are the true bagholders. And because the big telcos always struggle for money they outsource more and more of their towers. The only risk is when some of the big telcos merge, like last year it happened with Sprint, thats the reason FFO of the tower REIT's didnt grow last year.

[Spekulatius]

I bought some CPT (sunbelt MF) and ESS (West coast MF). I think Multifamily Reits have outperformed the SPY over the long run, but not lately (last few years). Lower interest rates have to do with it (not lately though) but I think pricing power and lack of terminal value risk and relative stability of rents are factors that make this a good asset class.

 

Best asset class in Reits may be trailer park Reits like ELS and SUI but both still trade at pretty rich multiples.

[thepupil]

1 hour ago, Spekulatius said:

I bought some CPT (sunbelt MF) and ESS (West coast MF). I think Multifamily Reits have outperformed the SPY over the long run, but not lately (last few years). Lower interest rates have to do with it (not lately though) but I think pricing power and lack of terminal value risk and relative stability of rents are factors that make this a good asset class.

 

Best asset class in Reits may be trailer park Reits like ELS and SUI but both still trade at pretty rich multiples.

 

agreed on all accounts. another important thing for the asset class is the stability and attractiveness of financing. Fannie/Freddie/Ginnie are a large % of the financing (and increase share when banks/insurers/CMBS aren't there), and provide low cost/low spread financing to the market. While the REITs don't take advantage of this and run with very low leverage, it underpins asset pricing and allows the REITs to sell individual assets for good prices to buyers willing to put on more leverage. 

 

the low leverage of the MF REITs is a double edged sword in that they can never relaly be that exciting, but it also makes them much easier to average down into as they decline in price. they'll be the last ones standing if shit really hits the fan. 

[LearningMachine]

I haven't been following this, but hoping someone has done the math on what will be available to shareholders after mortgages/debt is refinanced at higher rates as it matures.

Edited January 6, 2023 by LearningMachine