Office REITs Surprise Performance
Flipping the Script
Offices Outperform in Q3
It was a challenging quarter for equities; despite a strong start to the summer the S&P 500 Index shed 3.65%. The office sector, an unlikely outperformer, lost just 2.84%.
Office REITs beat not only the other REIT sub-asset sectors but also the broader index for the first time since 2020. Hardly cause for celebration, but perhaps an early sign the beaten-up sector is reaching an inflection point.
Part of the performance can be explained by several transactions that proved the office market wasn't totally dead. Most notably S.L. Green Realty Corp sold a 49.9% stake in Manhattan's 245 Park to an Asian investment firm.
"That may just be one data point, but it showed that at least one investor was willing to put incremental equity capital into an office building, and absorb a large amount of office-backed debt,” - Jeffery Langbaum (Bloomberg)
Supply Shock
Multifamily Starts Fall Off a Cliff
We were recently invited on Nasdaq TradeTalks to discuss new economic data around residential housing. The lowest multifamily construction starts in three years combined with record unaffordability are creating an interesting long-term set-up for housing-focused REITs.
Quote Book
Two Trees Development's Domino Sugar Building in Brooklyn, New York | Photo: Max Touhey, courtesy of Two Trees
An (Old) New Trophy on the East River ☝️
“A great work of architecture — and that’s what this is — mediates between history and future, between a past we value without wishing to bring it back and a horizon we can’t map yet want to be ready for.”
- Justin Davidson, New York Magazine (Curbed)
The Bumpy Road of Higher Rates 🚧
"While a painful situation for borrowers with maturing loans, real estate owners/investors achieved appropriate risk-adjusted returns in higher rate environments prior to the Global Financial Crisis. Capital will flow again, but getting to that new normal is going to be a bumpy road."
- Joseph Rubin, Senior Advisor at EisnerAmper (GlobeSt)
Luxury Retailers Splurge on U.S. Brick & Mortar ⚜️
"Luxury was one of the first categories to see sales return to pre-pandemic levels...Real estate was a big part of their strategy when it came to continued growth and expansion."
- Ebere Anokute, Retail Research as JLL (WSJ)