REITs Stumble After S&P Debut
January 13, 2017 | By Beth Mattson-Teig | National Real Estate Investor
REITs landed in a spotlight of their own last fall when they officially stepped out of the shadow of financials to headline their own real estate sector on the S&P 500. It was—and is—a big, long-awaited move. Industry observers anticipate that this could be a “major step” in attracting billions of dollars in new capital to REITs and other publicly-traded real estate companies.
Yet a less than stellar performance for the S&P 500 Real Estate sector during its first few months has taken some of the wind out of the sails. Real estate has been underperforming on the S&P 500 since it was added as a separate category, effective after market close on Aug. 31. During the fourth quarter, the S&P 500 Real Estate sector reported total returns of -4.41 percent compared to 3.25 percent on the overall S&P 500 Index.
Industry experts have varying opinions on the cause for that underperformance in a market where real estate fundamentals across most property types have continued to improve. One likely culprit is hyper-sensitivity to rising interest rates. The 10-year Treasury increased almost 100 basis points in the fourth quarter, from roughly 1.55 to 2.45 percent.
Blue Vault helps me to stay well informed on the financial status of both open and closed nontraded REITs and BDCs, so that I can help my clients better understand the product, before they make the decision to invest and after.