So with the anticipation of interest rates dropping in the (near) future, I'm thinking about jumping into REITS. I understand the fundamentals but not sure I have a handle on the type of REITS (commercial/residential) that are available or if locality (Texas based VS high priced areas such as NY) matter or how to what extent these even exist. Anybody already on REITs care to drop a little knowledge?

I have nothing to offer, but this is interesting. I'm going to get some info for my own knowledge.

I would look for the sector(s) you are interested in and decide if there is a certain geography you want exposure to (or not).

I did this a while back and picked an office REIT that had exposure to the eastern "smile states" and mainly newer office supply. It was totally beat down (like the rest of office) but I saw a recovery story there.

I'm also in Prologis, as I think they're the best industrial REIT out there.

In reply to Diggity

Diggity said:

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I would look for the sector(s) you are interested in and decide if there is a certain geography you want exposure to (or not).

I did this a while back and picked an office REIT that had exposure to the eastern "smile states" and mainly newer office supply. It was totally beat down (like the rest of office) but I saw a recovery story there.

I'm also in Prologis, as I think they're the best industrial REIT out there.

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Great stuff. Thank you!

In reply to jja79 "Why do you think rates are going to drop?"

Damn - was quietly hoping there was some good news out there I hadn't heard yet.

all the experts claim that a large storm is about to break on the regional banks which have exposure to commercial REITS and rental contracts as the initial loans are now going to have to be paid back at higher interest rates

I would imagine the trick will be to track these REITS as they start to collapse and buy in near the bottom a year or two from now.

I like the apartment REITs (especially the ones in the Sunbelt).

If interest rates go down, cap rates should go down, so valuation up. If inflation remains, real estate tends to be a good hedge for inflation.

The US is having a large supply of apartments coming online now through 2025. However, new apartments starts have fallen off a cliff. I can see a tough operating period for the next 12-18 months. However, demographics and trends toward renters vs owners seem to favor apartments at a time when supply should be minimal.

In reply to LMCane

LMCane said:

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all the experts claim that a large storm is about to break on the regional banks which have exposure to commercial REITS and rental contracts as the initial loans are now going to have to be paid back at higher interest rates

I would imagine the trick will be to track these REITS as they start to collapse and buy in near the bottom a year or two from now.

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Apartment REITs are typically low leveraged and shouldn't be affected by the private equity investors that bought 3% cap rates with variable rate debt that is now 8+%. In fact, they should be in a good position to purchase assets from distressed borrowers.

I could see apartment REITs falling some from current levels if interest rates rise or if we have job loss. Jobs and apartments tend to trend together.

In reply to Troglodyte

Troglodyte said:

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I like the apartment REITs (especially the ones in the Sunbelt).

If interest rates go down, cap rates should go down, so valuation up. If inflation remains, real estate tends to be a good hedge for inflation.

The US is having a large supply of apartments coming online now through 2025. However, new apartments starts have fallen off a cliff. I can see a tough operating period for the next 12-18 months. However, demographics and trends toward renters vs owners seem to favor apartments at a time when supply should be minimal.

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The problem is, apartment people think we are loading up for the next big "buying opportunity". Because all they know is that the FED drops rates, saves the day, and everything roars upward for the next 10 years. They fail to understand that the FED has never been in a position like this one, not even the 70's and 80's, where all sectors of debt are higher than ever, federal debt as above WW2 levels, and rates are merely at historical averages. The backdrop for "rescuing the economy and banks" by dropping rates is just not there, not without causing an absolute catastrophe first. I'd be very careful with apartments. Stay with the biggest names who have the greatest concentration of high quality real estate in good markets with low leverage. Everyone else is in for some pain.

I've had (but currently do not have) health care REIT's--ie. nursing homes. elder care, assisted living-- and done well with them. The need is not going away anytime soon with boomers coming "on line."

In reply to MAS444 I hope there is too.

In reply to RoyVal

RoyVal said:

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So with the anticipation of interest rates dropping in the (near) future, I'm thinking about jumping into REITS. I understand the fundamentals but not sure I have a handle on the type of REITS (commercial/residential) that are available or if locality (Texas based VS high priced areas such as NY) matter or how to what extent these even exist. Anybody already on REITs care to drop a little knowledge?

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I have serious doubts that interest rates are going down. Because the fed printed way too much money post-2021, our members of Congress spent a lot of money and a lot of fiscal gridlock going on here in DC. So just hold onto your cash or if you have any profits, pull out of the markets.

In reply to matureag

matureag said:

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I've had (but currently do not have) health care REIT's--ie. nursing homes. elder care, assisted living-- and done well with them. The need is not going away anytime soon with boomers coming "on line."

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this is a good thought that never crossed my mind. THX!

In reply to matureag

matureag said:

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I've had (but currently do not have) health care REIT's--ie. nursing homes. elder care, assisted living-- and done well with them. The need is not going away anytime soon with boomers coming "on line."

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Username checks out.

Suggested REITs?

I was on a call this morning with a group of secondary marketing types (the people that trade mortgage backed securities, sell mortgages directly to investors, etc) and the consensus was there will not be a Fed rate cut prior to the election.

In reply to jja79 Thanks for that info...that's been my assumption.

REITs are in a bad place right now, I know because I work for one. There are many properties financed with fixed rate debt that have near term expirations and will barely cover or become cash flow negative after required refi. Values are also much lower than what is being reported, almost nothing of institutional investor class has sold in the last year and a half so appraisers have no comp data. Things are going to get ugly soon even with a small interest rate reduction.

In reply to MAS444 After the inflation numbers Friday one of the Fed governors said not to rule out a rate increase.

In reply to jja79 I can't hear you, I can't hear you….

In reply to jja79

jja79 said:

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After the inflation numbers Friday one of the Fed governors said not to rule out a rate increase.

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increase? who said that?

https://www.reuters.com/markets/rates-bonds/most-brokerages-stick-by-forecast-fed-rate-cuts-starting-june-2024-03-21/

I just met with my FA on Friday and Goldman is saying first cut in September so that article may already be dated. They started the year expecting 4 cuts. Now down to 2.

I questioned likelihood of cuts at all and his personal opinion was leaning more towards my commentary than GS.

In reply to RoyVal I believe it was Bowman.

I think there's a chance we still get one cut. I personally wouldn't invest in an multifamily or office REIT right now. The well managed mf REITs should be solid long term, but the office REITs…. I'll pass.

Higher for longer is what I've been hearing but this suggests maybe even higher.

https://www.wealthmanagement.com/alternative-investments/fund-managers-are-bullish-reits-2024

I'm sure you can find others who may say something different.

As a MF investor, I look for good operators in good markets. For REITS, I've looked at O & EPR.

Good luck.

In reply to dc509

dc509 said:

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I think there's a chance we still get one cut. I personally wouldn't invest in an multifamily or office REIT right now. The well managed mf REITs should be solid long term, but the office REITs…. I'll pass.

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The cost of goods are still well above pre pandemic rates. We still have a ton of work ahead!