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Serenity Alternative Investments Blog - Re-Thinking Real Estate: Fake News And Distress In The REIT Market
October 2020
Serenity Alternative Investments Blog - Re-Thinking Real Estate: Fake News And Distress In The REIT Market
- PERFORMANCE – Serenity Alternatives Fund I returned -2.49% in September bringing YTD returns to +2.4%. The FTSE NAREIT All Equity REITs index returned -2.67% bringing YTD returns to -12.3%.
- DISTRESS!!! – Investors looking for deeply discounted commercial real estate can find it in the REIT market. And buy it immediately with almost 0 frictional cost.
- FAKE NEWS – The categorization of REITs as defensive investments is a myth. REIT returns trounce private market returns early in recoveries, making them prime investments early in the cycle.
“To know that we know what we know, and to know that we do not know what we do not know, that is true knowledge.”
– Nicolaus Copernicus
How many times did you have to read that quote? In between all the knows and the do not knows, there is some beautiful ancient wisdom. Being confident in your knowledge and yet humble in your approach goes a long way in investing. There is always more to know, the landscape is infinitely complex, and there are always things to learn that can improve your perspective.
And who better to remind us of the importance of the limits of our knowledge than a 15th-century cosmology loving mathematician heretic. Seriously…Copernicus existed at the edge of scientific knowledge and brutally entrenched perceived wisdom.
In that spirit, it’s worth examining our assumptions regarding today’s commercial real estate market. Is our current knowledge rooted in data and observation, or gut feeling and intuition? Are cheap assets abundant and easy to buy, or does it just feel like they should be?
I cannot quantify the variety nor magnitude of available “deals” in the private market, but I can quantify and present some incredible opportunities in the REIT market. REIT deals exist, and they can be accessed without enduring a long competitive bidding process that may or may not result in a deal being consummated. If you are looking for real estate deals are you examining the REITs? I’ll bet Copernicus would.
Similarly, the REIT market as a whole is worth re-considering in light of perceived wisdom. Many investors view REITs as a defensive investment, but REITs actually produce their best returns EARLY in the business cycle. History shows that REIT portfolios recover from recessions much more quickly than private real estate assets due to their high location quality and the opportunistic nature of their management teams. So while REIT valuations may be very attractive currently, these deals might not be around for long…
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