Scott Crowe

MIAMI—Are REITs in some sectors performing better than others—or will they in the future? Which do investors favor—and why? caught up with Scott Crowe, a global portfolio manager for Resource Real Estate, a New York-based manager of complex real estate assets, to get his take on these questions in part two of this interview. If you missed part one, “REIT Expert Predicts Multi-Year Bull Market,” be sure to check it out. Are you more bullish on the US or Europe right now?

Crowe: I think globally, what’s happened is the US has performed better than international markets, and I think the US will continue to be one of the better places to invest. However, one other place I think investors need to look is Europe. That’s because some of the opportunities in Europe are extremely attractive. Many companies with high quality assets are trading at 30% discount to the NAV—that’s where I guess some of the best opportunities are.

I am more bullish on the fundamentals in the US than I am in Europe. I am not particularly optimistic about the rents and economic growth in Europe, but in terms of pricing, it really is at bottom of the cycle valuations. Also, Europe had a double-dip recession, so when buying real estate in Europe right now, you have similar valuations you would have in the US back in 2008. Some opportunities are once-in-a-lifetime. What sector will be the biggest winner in this cycle?

Crowe: We think that the winner in this cycle will be multifamily, particularly multifamily exposure away from major markets. The top 10 metropolitan areas in the US rebounded very quickly following the financial crisis—abnormally so. They normally do recover first, but valuations are back to peak pricing.

However, if you go outside of the major markets, there is much better value, because you have had very little improvement in real estate values, as people have been so risk-averse and cautious just given the shock that we went through. But that’s all about to change. As the economic recovery broadens, credit availability will broaden out to these markets, and with it, investor appetite, due to the phenomenal return that they offer, and the fact that people are going to be more optimistic on the prospects for these markets. And that’s generally where we’re focused. What do you see ahead? Are we in store for big changes?

Crowe: A long-term structural change is going to continue in the US where there is a high propensity to rent. The banks are only lending to rich people, and generations X and Y have a high rate of mobility. They don’t want to get saddled with a mortgage, they tend to do more activities outside of the home, the want to be in more dense urban areas, and seeing what their parents have gone through, they maybe question the ability of housing as a long-term wealth-generation tool. So I am very bullish on multifamily.

I am also very overweight the net lease REITs. These have probably been the hardest hit in the selloff because their main benefit is yield, which means they compete with fixed income, and have sold off as bond yields increased. The yield on their property still has significant cushion between debt costs and yield. These companies have the best growth opportunity out of the market full-stop. They can acquire in a very accretive manner, they have a big push for income and they have the ability to grow earnings through acquisitions. This is a missed opportunity for the market that we have been taking advantage of.