Partner Malcolm Montgomery (New York-Real Estate) was featured in The REIT Report, the weekly podcast by the National Association of Real Estate Investment Trends (NAREIT), and discussed some of the latest themes and developments in the real estate investment market.
Montgomery noted that the financial markets have reacted favorably to Donald Trump’s election, with investors expecting the new administration to be “economy friendly.” He pointed out, however, that real estate markets tend to prosper in times of stability, and it remains to be seen whether the White House's economic policies will support investor confidence. Real estate investment may also be affected by concerns about market volatility due to uncertainty surrounding healthcare, tax and trade policies, as well as the impact of potentially tighter immigration standards.
Regarding the capital markets, Montgomery said many REITs have strong capital structures despite rising interest rates. "There were large amounts of unsecured debt issued in 2016 to lock in lower rates," he said.
Montgomery pointed out that rising inflation can work to the advantage of real estate investors. "Over time, inflation leads to increased rents and healthy capital gains on real estate investments and, therefore, inflation will ultimately increase the value of REITs and other real estate equities," he said. "The prospect of inflation is not a death knell for REIT investing at all."
One developing trend Montgomery highlighted is the shrinking gap in performance between major metropolitan markets and secondary cities. He also characterized the outlook for industrial REITs as "upbeat," thanks to higher consumer confidence and increased spending. Prospects for single-family home rental REITs and data center REITs are also promising, although Montgomery warned of the risk of overbuilding in the data center sector.