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Every big real estate boom leaves a few good neighborhoods behind.
Housing prices are high, and real estate investment trusts focused on data centers have been all the rage, but if financial advisors think all REITs have lofty valuations, they're missing opportunities to find some bargains and diversify their portfolios. Many public ones are still trading at a discount to net asset value, said Sam Adams, co-founder of Vert Asset Management, which holds 150 REITs globally. They can offer value as well as diversification away from the artificial intelligence and technology concentration in large-cap equities worrying some investors. "One of the things that real estate does is it gives you exposure to a real physical asset. So, when intangible assets like tech companies struggle, sometimes the market rotates to real assets as a safety haven," he said.
Given REITs' lower valuations compared with the AI and tech sector, real estate might be in a better position if the market cycle changes. Adams points to the dot-com bubble as an example: From 2000 to 2002, REITs saw an annual return of 14.6%, while the S&P 500 lost 14.6% annually. While many of the products underperformed after the Federal Reserve's rate hikes a few years ago and COVID, which repriced much commercial real estate, REITs may still offer an alternative to expensive traditional stocks and bonds.
For advisors interested in adding REITs, whether public or private, there are a few criteria to consider, as well as strategies for investors seeking to exit their physical holdings in a tax-efficient way. Once advisors move beyond data center and senior housing public REITs, Adams said a broad swath of assets from hotels and resorts to self-storage, warehouses and shopping malls trade under net asset value despite many having strong revenue and operating income. "Everything else is still kind of in the bargain drawer," he said.
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Scott Eichler, wealth manager at Savvy Advisors and a longtime REIT investor, focuses on several types of public REITs, including multifamily, industrial and mortgage REITs. He likes multifamily REIT AvalonBay because it owns high-quality, high-occupancy Class A apartment buildings in densely populated areas, and Prologis because it owns more than 1 billion square feet of light industrial space.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
