SAN FRANCISCO—Recent news that gaming giant Caesars Entertainment and department store chain Dillard’s, among others, have begun exploring a REIT structure, which points up the appeal of the sector but also indicates “the strength of commercial real estate in general,” Marcus & Millichap’s Hessam Nadji said late last month. Interviewed on CNBC’s Fast Money, the GlobeSt.com Thought Leader charted the REIT sector’s outperformance of the S&P 500.
“They’ve actually been on fire,” MMI’s chief strategy officer said about REITs in general. “The cyclical parts of the REIT world—hospitality, self-storage, retail—were hit very hard and they led the recovery, because they’re high-risk, high-return types of assets. But in the hospitality sector in particular, we’ve seen record occupancies, revenue per room is growing at about 8% per year and there is very little new construction going on.” Accordingly, he said, shares of hotel REITs are trading at 500% of the pricing they managed during the trough of the market.
For a variety of reasons, Nadji is sanguine about the long-term implications of REITs becoming a standalone sector within the Global Industry Classification Standard structure, and the eventual rise in interest rates. “I will say that the REIT sector is more sensitive to interest rate movement in the overall marketplace,” he told the CNBC audience. “But I think the outlook is so favorable on the supply-demand side of the equation, and the REITs are such good operators. They’re really on the cutting edge of economies of scale, acquisition capabilities and development capabilities. I think they’re going to perform very well.”
Along with homing in on REITs, Nadji also surveyed the wider landscape of commercial property fundamentals and trends driving the market’s strength, as well as private investors’ importance to the commercial property sales universe. For the full video, click here. For all coverage of Marcus & Millichap on GlobeSt.com, including columns and insights from Hessam Nadji, click here.