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When Defense is the Best Offense
In a mature real estate cycle, we believe opportunistic defense is a strategy to consider.
A Game Plan for Today's Real Estate Markets
A defense’s mantra: protect against the big play. In portfolio diversification, that means guarding against downside risk. Real estate is an asset class that may insulate portfolios against traditional market risks. Yet, in today’s environment, you need an even stronger defense led by true real estate experts.
Build a Blueprint to Get Past Market Roadblocks
For illustrative purposes only.
What You Are Up Against
The real estate cycle has matured, yet attractive opportunities still exist. When devising your strategy, it is important to recognize which headwinds to avoid and how to adjust.
Domestic Growth Slows
"SLEEPY" GDP MAY CAUSE ISSUES IN CORPORATE ECONOMY1
Q2 2019 GDP falls into the "slowing, but growing" thesis of a late-cycle economy.
New Lease Volume Falls
OFFICE HITS LOWEST LEASE VOLUME SINCE 2016 (MILLIONS)2
Core sectors are showing their wear in a late-cycle environment.
PIPELINE OF NEW OFFICE SUPPLY IS GROWING (MILLIONS)3
2019 projections sit roughly 12 million square feet higher than 2018 completions.
View Disclosure: 1Bureau of Economic Analysis. U.S. Department of Commerce. 8/19. 2Cushman & Wakefield. Q3 2019 Office Market Overview. New lease volume sat at 62.0 million square feet in Q4 2016.3Cushman & Wakefield. Q3 2019 Office Market Overview. The supply pipeline rose from 113.4 million square feet in Q4 2018.
SLG's Manhattan Office Cash Leasing Spreads
S.L. Green Q2 2019 Supplemental Data.
Big Supply Concerns in the Big Apple
Core markets are a good barometer of the state of play in real estate. Manhattan alone has 15.4 million square feet of office real estate in its supply pipeline.
Despite a growing economy, Manhattan leasing spreads are falling. Why? Oversupply.
A larger share of the Washington, D.C. office market is being leased to co-working outfits.Co-working tenants are typically short term with worse credit, which may cause a re-pricing of risk in core office.
Take the Right Risks
Defensively positioning your real estate strategy does not eliminate equity opportunities. Rather than relying on organic rent growth, look to value-add and non-core strategies.
Potential play: consider the evolution of the student housing market.
Past performance is not indicative of future results. You cannot invest directly in an index.Bloomberg. Bloomberg Office Property Index (Office), Bloomberg REIT Regional Mall Index (Malls). Bloomberg; Resource Real Estate, LLC. Mortgage REITs represents an equity market cap-weighted basket of publicly traded mortgage REITs, including Apollo Commercial Real Estate, Ares Commercial Real Estate, Blackstone Mortgage Trust, Granite Point Mortgage Trust, Ladder Capital, and TPG Real Estate Finance Trust. 9/30/18-9/30/19. Office had a 3.4% yield with 15.70% 360-day volatility. Malls had a yield of 5.1% with 19.33% 360-day volatility. Commercial mortgage REITs had a yield of 8.2% with 14.27% 360-day volatility. Past performance does not guarantee future results.
Look to Credit Opportunities
In today’s slow-growth, late-cycle environment, core sectors are offering lower yields with increased volatility.
Potential play: a focus on credit investments like commercial mortgage REITs. They sit higher in the capital structure and may offer a better risk premium than office or retail.
The information contained herein is intended to be used for educational purposes only and does not constitute an offer to sell or a solicitation to purchase securities. Such offers or solicitations can only be made by means of a prospectus. Prior to making any investment decision, you should read the applicable prospectus carefully and consider the risks, charges, expenses and other important information described therein. The value of your investments may decline, and you could lose some or all of your investment. The prospectus can be obtained by contacting your financial advisor or by visiting our website at www.ResourceAlts.com.
Resource has two interval funds that are distributed by ALPS Distributors, Inc. (ALPS Distributors, Inc. 1290 Broadway, Suite 1100, Denver, CO 80203). Resource Real Estate, LLC, Resource Alternative Advisor, LLC, their affiliates, and ALPS Distributors, Inc. are not affiliated.