Public Trading (REITs) VS Private Investing

• The second quarter saw a record rate of 20.1%, up from 19.8%. This is the third consecutive quarter in which the rate broke the previous record, surpassing the 19.3% historic peaks achieved in 1986 and 1991.

• While asking rents increased by 0.3%, the highest increase in the past year, effective rentals decreased by 0.1% in Q2 as renters demanded more concessions.

• For several quarters, vacancies have increased as supply has decreased more quickly than demand.

• The national rate has risen by 120 basis points to 6.5% since the second quarter of last year. Despite this, the sector's average before the epidemic is far higher than the current vacancy rate.

What is Private Vs Public Real Estate (Simplified)

On paper, both are very similar: one owns a portfolio of assets, while the other is a public company with equity owned by shareholders and is accountable to the public market

Let's dive a little deeper...

Public Real Estate REITS- Real Estate Investment Trusts are traded on the major stock exchange. Intending to make money, they buy and manage real estate. To be clear, by public or exchange-traded REITs, I mean those that are available for free through a custodian and trade on the NASDAQ or NYSE.

You can look at an example on the Prologis home page.

Private Real Estate- Concentrates on commercial properties that generate revenue across a variety of asset classes. Private companies focus on buying, building, and investing in real estate that over time grows in value.

How should you think about investing in a public real estate company or an asset/portfolio of assets?

REIT Model: Getting real estate exposure through buying publicly traded shares gives you liquidity and a low-cost structure of operating. You're betting on management, they will operate the business in a way that will create value.

Several blue chip companies should be providing higher performance that most investors can achieve on their own.

When public REITs announce acquisitions, there is heightened scrutiny.

Public REITs, in general, have lower costs of debt presently because they termed out their debt during the low interest rate environment of the past 5 years.

Private: You own the whole asset with regard to liquidity when you buy or sell.

Private real estate investments will often try to sell investors on the exclusivity of their pipelines. For the most part, this is just salesmanship. Just about any property is available to whoever has the capital, and properties will overwhelmingly go to the entity willing to pay the most.

The cost of debt for private real estate will differ significantly based on the vehicle's capital-raising era. While funds raising capital today are presumably looking at interest expense closer to 7%, funds that started in 2021 were probably able to lock in low-cost mortgages for the long term.

How is it looking today? Take a look at the Nareit numbers link.

McKinsey's most recent Global Private Markets Review states that macroeconomic challenges, increased financing costs, and an unclear growth outlook will hinder deal activity, fundraising, and performance in 2024, ushering in a slower period for the private markets.

REITS are looking to bring in better historical returns for the next 10 years...

But why?

The debt ratio is currently at 35% with an average daily dollar trading volume of $8.1M as of May 2024. There are a total of 77 offerings including IPOs, secondary common, secondary preferred, secondary debt, and ATM.137 FTSE Nareit All Equity REITs, with a dividend yield of 4.19% and a market cap of exactly $1,242,795,779.

ok, ok, ok let me slow down.

Let's use a comparison to sum it down. Annual returns for REITs in 2024 are currently -4.19%, the outflows of higher interest payments reduce the cash they have available to make dividend payments to investors.

Average Yield Spread 1990 - 2024 1.14%.

The choice is yours I suggest you invest in a deeper dive to determine what works for you.

Within weeks of selling Wharton Properties' flagship store, 724 Fifth Avenue, to Prada for $425 million, and neighboring 720 Fifth for $410 million. Retail tycoon Jeff Sutton and SL Green Realty Corp closed another enormous deal, selling the retail portion of 715-717 Fifth Avenue to Kering, the French luxury group that owns Gucci, Balenciaga, and Alexander McQueen, for $963 million.

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