Net Lease REIT Executives Talk About New Trends and Opportunities
“On the acquisition side, we will stay patient but are feeling the impact of cost capital increasing.”
LOS ANGELES—During a recent session at the national GlobeSt. Net Lease fall conference, net lease REIT executives discussed new opportunities to diversify portfolios and examined market shifts that are having an impact on operations.
For panelist Michael McKenna, vice president of leasing at Rexford Industrial, the firm’s leverage is still low. The current challenge for the industrial REIT mainly in Southern California is availability. “We are still seeing demand for product with rates still going up,” he said. “We are 99% occupied and what is left over is rough.”
While McKenna says things still haven’t trickled down yet, he is curious to see if those buildings that are coming online next year will hold to what they think they can achieve. “I have seen some recent properties in the South Bay [Los Angeles] that have delivered to market and those owners are holding firm on their rate.”
Rexford will continue to focus on low leverage into 2023. “Being quick and being able to do that inexpensively is our plan,” he said.
What is interesting to Joshua Zhang, director of investments at Four Corners, is the discrepancy between public and private valuations. “That is what I am keeping an eye on going into 2023,” he said. “There is still a discrepancy or a lag so we might see some convergence in 2023 and it will be interesting to watch how that shapes out.”
In the near term, Alex Thomas, VP of acquisitions at Spirit Realty Capital, is not expecting things to get much better. “We are a little bit in uncharted territory,” he said. “On the acquisition side, we will stay patient but are feeling the impact of cost capital increasing. It will be interesting to see how it plays out.” He added that he expects some interesting opportunities ahead, but says that Spirit Realty Capital will be selective. “Our portfolio is in a position to handle a recession. The portfolio metrics look stable.”
On the topic of acquisitions, Zhang explained that his firm has to remind themselves that even though they are acquisition folks, REITs don’t have to buy. “We can still collect rent and issue dividends and we can get creative by selling good properties and buying back shares, especially if there is a discrepancy between public and private market valuations,” he said. “If you have pre-raised capital at reasonable rates, you will be fine. If you over-extended yourself and have large credit issues as a REIT, you will get hurt.”
He added that “This might be a longer winter or drought … but it is about recalibrating and moving forward.”