What Public Markets Are Saying About the Value of Real Estate
March 21, 2021 | Kyle Hagerty | Propmodo
For better or for worse, much of the world of commercial real estate is insulated from the wild antics of ‘retail traders’ causing chaos on Wall Street. Investors, without access to massive wealth or lines of credit needed to purchase commercial properties, looking to speculate on the future of the asset class have flocked to real estate investment trusts (REITs). Unlike a lot of speculative bets on unprofitable companies, REITs are backed by the value of real estate holdings and rent collections. They are a less speculative investment that pays high dividends by design, giving investors, often large institutions like pension funds and endowments slow and steady income, much like a bond or annuity. REITs have also gone increasingly niche, there are now REITs that operate in practically every sector of business. The performance of REITs can tell you a lot about what investors, sophisticated and not, are thinking about where future value can be found in real estate. We rounded up some of the top REIT sectors gaining attention.
Cannabis
REITs specializing in serving the rapidly growing cannabis industry across the United States are sparking up high margins. While ‘pot stocks’ have been hit or miss, the structure of REITs looks like a safer route for cannabis industry investors. Shut out from traditional lending by legal issues at a federal level, cannabis enterprises that want to expand must seek other forms of capital. That’s where cannabis REITs step in, offering a one-stop-shop, providing financing, brokerage, and construction services, leasing back the asset to the cannabis purveyor.
Innovative Industrial Properties, which owns 67 properties in 17 states, has gone gangbusters since its inception in 2016, seeing a 1,200 percent return. Stock in the REIT is up 123 percent over the past 12 months, backed by steady rent collection in the face of a global pandemic. The company also boasts an excellent dividend growth record, recently raising its payout to 6 percent. The company is by far the largest and most public cannabis-specific REIT, but others are emerging as major players. Subversive Real Estate Acquisition is working its way onto exchanges, and it’s only a matter of time before private cannabis REITs like AFC Gamma Inc and GreenAcerage get listed.
