REIT Expert Predicts Multi-Year Bull Market

MIAMI—Should you reduce your REIT holdings and bet on a continued run? What are the challenges in the REIT market?

GlobeSt.com 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 and other REIT questions in an exclusive two-part interview. Be sure to come back to this afternoon's Miami edition to get his take on sectors will see the strongest REIT performance—and why.

GlobeSt.com: Some say now is not the right time for REITs—that it's time to reduce REIT holdings. Do you agree or disagree?

Crowe: My position is that now is a phenomenal entry point into what is going to be a multi-year commercial real estate bull market. I was buying for the fund last week and I think this is one of those “bang the table” moments where you can access commercial real estate at a 15% discount to the NAV. Historically that's been an excellent entry point into the market.

What we're seeing on the ground is that we're entering the growth phase of the real estate cycle where fundamentals are starting to improve. The reason interest rates are higher is because economic growth is improving. And one of the things that's very unique about this cycle is the historically low amount of new supply.

Given the financial crisis, there's been no financing available, for any new supply for five years, and there is nothing on the horizon. What that means is that very early on in the recovery phase of demand, we are already getting rental growth. That is pretty unique, as normally this usually takes a few years.

The rental growth potential for real estate assets is going to surprise people. We're not used to this low level of supply. While interest rates have moved up from astonishingly low levels, they are still at historical lows. That's a very good backdrop for commercial real estate.

I just finished about 20 company meetings at a real estate conference, and nobody is seeing any change in investor appetite for real estate, nor pricing. So what that means, again, is that this correction represents one of those very unique phenomenal buying opportunities when the market overreacts.

GlobeSt.com: What challenges do you see for commercial real estate REITs? Advantages?

Crowe: I believe we have been through most of the adjustment phase. I believe there will be more adjustment phases as the economy shifts from being very weak and needing monetary stimulus to being on a stronger footing with no stimulus. But I do not see many challenges right now, outside of what I initially said about the major markets. For the rest of the REIT market I see a multi-year bull market ahead that most people are underestimating.

GlobeSt.com: Are you seeing a lot of new REITs forming now or are they declining?

Crowe: I see a lot of new REITs forming. You continue to have this interesting dynamic of non-traded REITs, liquidating into the public market, becoming their own listed entities. You're seeing Hilton Hotels looking to form a REIT, etc. You continue to see the REIT sector grow as more and more real estate ends up on the stock market.