Jordan Heller, CEO of Heller Wealth Advisors LLC of Summit, N.J., and New York City, says most of his 200 or so clients have an allocation to real estate in their portfolios. The independent wealth management firm has exposure to public and private real estate.
Heller, who brought many REITs public between 1987 and 2000 while working on Wall Street, has had an underweight position in real estate because of the late stage of the economic cycle. “However, at this moment, REITs tend to offer a nice value,” he says, “and there’s justification for a stronger position” if one is selective.
According to Heller, REITs are typically trading at a 5% to 20% discount to their private-market peers, based on net asset value. “This provides investors with more of a floor on the downside while you’re getting the yield and the long-term growth,” he says, and it’s resulting in more M&A activity.
REITs tend to lag their NAV while interest rates transition, he says. He also thinks REITs could be a barometer of things to come in the private real estate market. “When the economy goes south, there’s a stickiness,” he says, before real estate responds with lower rents, lower occupancy rates and a slowdown in construction.
A number of real estate sectors tend to be more resistant to economic downturns and less sensitive to changes in interest rates, says Heller, including health-care facilities, student housing, storage facilities and manufactured home communities.
American Campus Communities builds student housing on or next to many large college campuses. “You won’t get overbuilding because of the location,” he says, “and there’s a constant flow of demand” from matriculating students.
Well-managed shopping center REITs with good assets “should be able to stand the test of time,” he adds, and some are converting their properties to mixed-use developments or apartments. Urban Edge Properties, Federal Realty Investment Trust and the Howard Hughes Corp. have repurposed properties in infill locations where supply is constrained, he notes.
Heller tends to use actively managed funds or ETFs in the REIT space because they fit his business model. He uses third-party managers for private real estate—either funds or one-off deals (such as investing in an industrial building or an apartment building).
But for now, REITs hold much of his interest. “They’re cheaper, if I want to I can get out, they’re professionally managed,” he says, “and they’re relatively transparent.”