We had a simple question for Marty Cohen: “What the heck is going on in the REIT space?” OK, we’ll concede it’s not so simple. But with a real estate market that can generously be described as dismal, why does the REIT sector continue to outperform? Is it a castle made of sand, we wondered?
Cohen, co-chairman and co-CEO of REIT money manager Cohen & Steers, patiently explained the differences in performance between residential versus commercial real estate recently and let us in on where he and his firm see the good deals.
How can REITs perform so well when underlying real estate remains such a huge concern?
People might not like the pace of our economic growth, but the fact remains that the economy is expanding. We are adding jobs, and there is an increasing demand for office space with no new supply being built. Uncertainty in the market means there is low demand for new buildings; vacancy rates fall and excess space instead gets utilized. That translates to a landlords’ market, rather than a tenants’ market, which in turn translates to good returns for property investment. The real estate market is not monolithic; it is regional and varies by type. In the regional space, the middle of the country isn’t doing as well because that is traditionally a manufacturing base. The coasts, however, are doing well. In the second category, property type, multifamily tenant buildings are doing well.
Is that because owning in the residential real estate market is not what is once was?