REITs Are Historically Cheap
Rates Up, REITs Down. Commercial and residential real estate markets remain an easy transmission mechanism - or "punching bag" - of the Federal Reserve's historically swift monetary tightening cycle.
Higher For Longer? The business models of many private equity funds and non-traded REITs were not designed for a period of sustained 5%+ rates or double-digit declines in property values.
"Hope" is the only strategy for some highly-levered property owners amid a dearth of buying interest and dwindling refinancing options. CRE transactions and capital market activity has dipped to GFC-era-lows.
Pockets of distress remain almost entirely debt-driven, however. Property-level fundamentals remain solid across nearly every property sector. Public REIT reported that "same-store" property-level income was 10% above pre-pandemic levels in the most recent quarter.
We're beginning to see some REITs with balance sheet firepower become more aggressive, and seeing some capitulation from highly-levered players that are desperate for capital. Blackstone's nontraded fund has sold nearly $10B of its best-performing assets to public REITs this year.
