REIT Execs Balance Opportunity and Uncertainty
April 11, 2022 | Therese Fitzgerald | Commercial Property Executive
REITs find themselves at an unsettling juncture in the real estate cycle.
They are still reaping what Ventas CEO Debra Cafaro called the “incredible snap-back in demand” post-COVID, but they are facing a tsunami of risk factors, including geopolitical turmoil, spiking inflation and interest rate hikes that have already begun to put upward pressure on cap rates. Real estate is still liquid, but at what cost? And could some of that capital seek other alternatives?
“REITs are creatures of the IRS code by charter, but we are also captive to our access to capital because we are dividend payers,” Cafaro remarked.
Rising uncertainty was one of the consistent themes last week at the annual REIT symposium sponsored by New York University’s Schack Institute of Real Estate. REIT CEOs, advisers and top investors offered their bird’s-eye views of the public and real property markets to a packed audience composed mostly of aspiring real estate executives enrolled in NYU Schack’s real estate programs. Here are some key takeaways from the conference.
Wrong Time to Refinance
Despite a 25-basis point increase in March, interest rates remain historically low. But they won’t stay that way for long because the Fed is determined to keep raising interest rates until it can control inflation.
“The scariest chart in real estate is the long bond,” said David Roth, partner & head of Real Estate Private Equity, Ares Management. “Today our fight is: Will our rents grow faster than rates rise?”
Luckily, REITs and other public companies are much less levered and have pushed maturities out, according to Cedrik Lachance, executive vice president & director of research for Green Street.
