Without a doubt the global pandemic brought on by the coronavirus has, and will continue to have, an impact on the world of real estate investing. As a result, we at CH have been asking the same questions of our real estate investment managers as many of our clients have been asking of us. How has the pandemic and resulting lockdowns and economic slowdowns impacted the world of real estate? What will rents and property values look like? What parts of the real estate market will be harmed the most and which might even prosper in the future?
The team of managers from our largest real estate fund, CI Global REIT, recently released some commentary surrounding the real estate market. If you are interested in reading the full commentary, you can do so by clicking here. From our perspective, there are four major takeaways from this commentary that we would like to share with you below:
- The market for real assets including real estate is the largest in the world, dwarfing the bond market and being larger than stocks and bonds combined.
- The world of real estate has gone through a number of major changes throughout history.
- As an asset class, real estate has continued to produce the most consistent streams of cash flows over time.
- Pension plans, private equity pools, endowments and other institutional investors remain invested in real assets, seeing them as a key component in their overall asset mix.
Getting into the specifics, our active management teams over the course of the last few years have pivoted out of certain sectors of the real estate market and into others. Hotels and strip malls, for example, are essentially at a near zero weighting since our managers see ongoing structural struggles for these sectors. On the other hand, buildings focused on servicing the technology space have been increasing in their portfolio. The same is true for warehouse space REITs (in fact their largest single holding is a warehouse company) based on the belief that online shopping will continue to grow. REITs that serve technology and internet-based companies have now grown to be almost a third of the entire real estate space and make up a growing part of their portfolio. Finally, residential REITs continue to grow in importance as more and more people in the world move into apartments and condominiums. These buildings need property management teams, equity providers and mortgages.
As a final point, the metrics used to judge the quality of specific REITs has not changed. The quality of the management teams, the levels of debt, the diversity of the real estate portfolio and strength of the specific properties within the portfolio remain paramount concerns.
Real estate will continue to be a core holding for us at CH Financial and our clients. We believe that people and companies will continue to need buildings to live and work in. The key is to build a well-diversified mix of real assets that will produce the cash flow our clients will need.