REITs Remain Hot in Cool Housing Market
The Florida housing market may be cooler than usual, as foreclosures become a problem for more and more homeowners, but you’d be shocked to hear that if you were in the real estate investment trust business.
Those with REITs, don’t buy homes; they invest primarily in commercial buildings, from hotels to apartment buildings and shopping centers. And despite concerns about single-family home prices weakening, commercial properties are holding up well.
REITs “remain part of the economy with pricing power,” says Joseph Betlej, portfolio manager of the Ivy Real Estate Securities fund.
REITs vs. Florida home loans
This fact has helped lift mutual funds that own REITs, which had already been among the market’s best performers for years. In the first half of the year, the average REIT mutual fund surged 12.7%, according to Lipper, the mutual fund trackers.
REITs have enjoyed a solid first half - more so than some Florida home loan investments - for a variety of reasons, including:
- Interest from private buyers. Big private-equity investors that control large pools of investment cash keep snapping up public REITs.
Having private buyers ready to scoop up REIT stock establishes a “floor” for the shares, says Joseph Smith, portfolio manager of the ING Clarion Real Estate Income fund. “It helps on the downside when the (stock) market is sloppy,” he says.
- Strong fundamentals. Intense demand for apartments and office space is powering earnings higher, says Ken Heebner, portfolio manager of the CGM Realty fund.
Rising rents charged by REITs for apartments and office space are attracting investors. In mid-June, investors learned of a new investment opportunity when Douglas Emmett, a large Los Angeles office owner, filed for an initial public offering.
Of course, REITs aren’t without concerns, notably rising interest rates. Investors seeking income, who are typically big buyers of REITs, may look elsewhere now that REITs have posted sizable gains. REITs are yielding 4.25%, Lindemann notes, well below the 5.18% yield on the 10-year Treasury.
Nevertheless, these appear to be safter investments for some. If demand for Florida home loans continues to escalate, however, flipping real estate will once again become a huge business.
