US housing starts fell 4.8% in July, a slump driven by groundbreakings for multifamily properties that dropped 17.1%; single-family house construction starts decreased 0.5%. Building permits dropped by 4.1%, to 1.22 million.
Investors in REITs, commercial mortgage-backed securities and collateralized debt obligations won't be affected much by the struggles in the retail sector, according to Moody's Investors Service. Lower-tier malls only account for 5% of the overall value of shopping centers.
Sabra Health Care REIT's proposed $7.4 billion merger with Care Capital Properties has been approved by shareholders, despite the arguments of Sabra investors Eminence Capital and Hudson Bay Capital Management against the transaction. Shares of both Sabra Health and Care Capital have declined since the deal's announcement.
Shareholders at both companies have approved RLJ Lodging Trust's proposed $7 billion stock-for-stock acquisition of FelCor Lodging Trust, despite concerns by analysts that the transaction is overpriced. The deal is slated to close on Aug. 31, 2017.
Manufactured-housing REITs such as Sun Communities and Equity Lifestyle Properties are delivering strong performance, with the sector posting 18.3% returns from January to the end of the July and 26.7% on an annual three-year basis, according to NAREIT figures. "The manufactured housing REIT sector is providing very good quality homes where people can live at an affordable rate and that provides a good return for investors," NAREIT senior economist Calvin Schnure said.
Publicly available data compiled by investment consultant Cambridge Associates suggest that listed equity REITs have outperformed private equity real estate funds by nearly 4 percentage points per year over the past 25 years, even while using less leverage. Even top-quartile private equity funds frequently failed to keep up with the average performance among listed REITs.
REIT industry FFO rose 7.9% in the second quarter, according to the NAREIT T-Tracker®, and topped $15 billion just three years after it first broke the $10 billion mark in 2014. NAREIT economist Calvin Schnure discusses the factors that have contributed to the REIT industry's strong growth.
Rent growth is slowing in cities such as New York and Nashville, Tenn., and rents are falling in Houston, according to RealPage. The outlook remains positive, however, as demand is strong and current supply cannot support the 1.2 million new households formed each year without increased single-family construction, says John Affleck, research strategist with the CoStar Group.
Since June 30, returns in the category of open-air shopping centers have risen 7%, after posting a 19% drop in the first half of the year. These strip malls are more insulated against retail's downturn as they have less exposure to apparel stores and more affordable rents, according to Mizuho Securities.
GRESB is in the process of rolling out several initiatives, including setting participation targets for 2017, says Sander Paul van Tongeren, managing director of GRESB. "GRESB has become the global standard with $2.8 trillion of real estate companies and funds benchmarked using the GRESB Real Estate Assessment in 2016," he says.
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