Real Estate Awards 2015: A profitable time in US real estate
Last year, US Reits racked up total returns of 27.15%, the third time in five years that returns had hit at least 20%. But as expectations mount that the Fed will hike interest rates returns have turned negative, retail investors in non-traded Reits could still get hurt.
by Ben Edwards
Having enjoyed double-digit returns for years, the gloss has swiftly come off US real estate investment trusts this year: at the end of July, the FTSE NAReit ALL Reit index was returning an anaemic -0.64%. That has prompted some Reit fund investors to start cashing out.
In the first half of the year, around $4 billion net had been returned to investors, according to data provider Morningstar, the first time investors have withdrawn more money than they’ve put into Reit funds since 2007. In fact, Reit fund flows have been negative on only three occasions since 1993 – twice in the late 1990s and then again at the start of the financial crisis eight years ago. This year could mark the fourth.
“There is a component of the investor base in Reits that are concerned about the potential for rising interest rates, and that has dampened some enthusiasm for Reit shares,” says Brian Jones, a fund manager at Neuberger Berman in New York.
Reits were introduced by US Congress in the 1960s as a way for ordinary investors to profit from bets on commercial real estate instead of it being solely a playground for the rich and their sprawling property empires.