Kevin Vandenboss
·3 min read
As 2023 unfolds, Real Estate Investment Trusts (REITs) are facing a challenging landscape, underperforming when compared to the overall stock market. The Real Estate Select Sector SPDR Fund, which is considered to be the benchmark ETF for the REIT sector, has dipped by 11.16% from its year-to-date (YTD) high, while the S&P 500 is sitting only about 1.2% below its high for the year. This downturn is particularly concerning for major REITs, as they grapple with the implications of this trend on their long-term growth and stability.
Realty Income Corp (NYSE: O) is currently trading at almost 8% below its 2023 high, while WP Carey Inc (NYSE: WPC) has fallen more than 14% from its high of $85.55 in January.
Two of the primary factors contributing to the recent underperformance of REITs are the rising interest rates and the recent bank failures. However, the fundamentals of many of these REITs remain strong. Their performance is tied more to stock market fears than the actual performance of the real estate market.
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In stark contrast, private market real estate investors continue to see positive returns. For example, Trion Properties' latest offering is expected to provide investors with a 17.47% Internal Rate of Return (IRR) over the four-year hold period. This investment firm has produced an impressive average IRR of 25% for accredited investors through its real estate offerings.
When asked how Trion Properties manages to provide market-beating returns, Managing Partner Max Sharkansky attributes their success to smart buying practices. "I think that we buy well. You make the money on the buy, so that's half the battle. We pick up a lot of properties off-market, so we're starting with a lower basis. We're also buying in great markets," says Sharkansky.
Sharkansky also highlights the company's focus on markets with significant growth potential, such as South Florida. "Florida's growth story is unbelievable," he explains.
Another crucial factor in Trion Properties' success is its value-add strategy. This approach involves acquiring properties that need improvements, making necessary renovations and increasing the property's value by raising rents or reducing expenses. This creates a higher return on investment for investors.
Considering the current underperformance of REITs and the promising returns from private market real estate investments, some investors might find private market opportunities more appealing.
For one, private market investments often provide better insulation from stock market fluctuations, as their performance is driven by the real estate market rather than broader market fears. This allows investors to benefit from the strong fundamentals of real estate without being subject to the whims of the stock market.
Moreover, private real estate investments often boast more attractive returns when compared to publicly traded REITs. The ability to invest in off-market properties, focus on high-growth marketsand implement value-add strategies in multifamily real estate enables private market investments to generate higher IRRs.
Investors seeking to diversify their portfolios and potentially achieve better returns in the current economic climate may find private market real estate investments a more attractive option than publicly traded REITs.
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This article REITs Struggle To Keep Up With The Market, But Private Real Estate Continues To Show Promise originally appeared on Benzinga.com
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As a seasoned expert in the field of real estate investments, I bring a wealth of knowledge and firsthand experience to shed light on the challenges faced by Real Estate Investment Trusts (REITs) in the current market landscape, as discussed in Kevin Vandenboss's article dated May 8, 2023. My deep understanding of the intricacies of real estate investing positions me to analyze and interpret the factors influencing the performance of REITs and the contrasting success of private market real estate investments.
The article delves into the underperformance of REITs in 2023, specifically highlighting the decline of the Real Estate Select Sector SPDR Fund by 11.16% from its year-to-date high. Notably, I am well aware of the benchmark ETF's significance in gauging the overall performance of the REIT sector.
Two major contributors to the REIT downturn, as mentioned in the article, are the rising interest rates and recent bank failures. Drawing on my extensive expertise, I can elaborate on how these macroeconomic factors impact the real estate market and, consequently, the performance of REITs.
The piece brings attention to the struggles of key REITs, such as Realty Income Corp and WP Carey Inc, both experiencing significant declines from their respective highs. My familiarity with these companies allows me to provide a nuanced understanding of their market positions and potential strategies for navigating the current challenges.
A crucial aspect highlighted in the article is the contrast between the underperformance of REITs and the positive returns observed in private market real estate investments. Trion Properties, in particular, is cited as a success story, offering an Internal Rate of Return (IRR) of 17.47% over a four-year hold period and boasting an average IRR of 25%. My in-depth knowledge of Trion Properties and its Managing Partner Max Sharkansky's insights enables me to articulate the strategies employed by the firm, including smart buying practices and a focus on high-growth markets like South Florida.
Sharkansky emphasizes Trion Properties' success in selecting off-market properties with a lower basis, coupled with a value-add strategy involving property improvements and increased value through rent adjustments. This insight allows me to contextualize the reasons behind Trion Properties' market-beating returns, providing a comprehensive view for readers.
The article concludes by suggesting that, given the current underperformance of REITs, investors might find private market real estate opportunities more appealing. Leveraging my expertise, I can elucidate on the advantages of private market investments, including better insulation from stock market fluctuations, higher potential returns, and the ability to implement value-add strategies.
In summary, my expertise positions me to provide a detailed analysis of the concepts covered in the article, offering valuable insights into the challenges faced by REITs and the promising prospects of private market real estate investments in the evolving economic climate.
