The REIT Market Is Crashing: Here Is What I Am Buying

Rates have dropped by over 10% on average over the past month alone. And that's just the average of the sector as represented by a mega-cap heavy REIT ETF called Vanguard Real Estate ETF, which means that many of the smaller and lesser-known REITs must have dropped a lot more. There are many of them that are down 20%, 30%, or even more. Why are they now suddenly crashing down? And the simple answer is interest rates. The escalation of the war in Iran has led to an energy spike, which is influencing most things in the CPI. As a result, inflation is now back on the rise, and this just forced the Fed to hike interest rates for the first time in 3 years. Not just that, but the debt market is currently predicting at least one or potentially even two additional rate hikes by the end of this year. The rate market, of course, hates this. Higher interest rates mean higher borrowing costs, lower investment spreads, and potentially even lower property values if it leads to cap rate expansion. On top of that, it also diverts capital away from REITs into now more competitive fixed income investments.

This explains why REITs typically show very strong inverse correlation with interest rates over the short term. When rates rise, REITs drop. And when rates drop, REITs rise. Now, a lot of investors are rushing for the exit as we seem to be entering a new interest rate environment. And this is causing REITs to crash. But I'm doing the opposite.

I'm buying the dips as I continue to accumulate larger positions in some of my favorite REIT investment opportunities. And that's because I remain as bullish as ever. Let me explain to you why, followed by a few picks that I'm buying at the moment.

Hey, this is Julia. I run a small investment firm that specializes in REIT investing. And there are really three main reasons why I think that REITs are today offering a great buying opportunity for long-term oriented investors, especially following the recent dip. The first reason is that the valuations are very opportunistic. REITs were already trading at discounted valuations, and they've then dropped another 10-20% across the board. As a result, they're now trading again at some of the lowest valuations in many years. There are even blue-chip like REITs with investment-grade rated balance sheets now trading at 30-40% discount to the net asset values. And to give you a good example here, Camden Property Trust, symbol CPT, is one of the leading Sunbelt-focused apartment REITs. It has an A-minus credit rating, very low leverage, and yet it's now trading at an implied cap rate of nearly 7%, even as it has recently sold some of its weaker and older assets at closer to a 5% cap rate.

So that's a very steep discount. And not only that, but they've shown that their properties, they have demonstrated that their properties are worth much more than what they are trading at. And they're using these proceeds to buy back their own shares. I think that these very low valuations provide very significant margin of safety. And importantly, we really don't need anything exceptional to happen here for us to earn good returns. When you're already trading at a 7% implied cap rate, you really don't need much growth to achieve very attractive total returns. If we now assume that the REIT is going to enjoy 3 to 4% average annual long-term same property NOI growth, you add to that a bit of leverage and perhaps it manages to close some of its gap to NAV over time, and you get quite quickly to very attractive total returns in the 15 to 20% average annual range.

So the very low starting valuations is my first important point. It provides great margin of safety because even if rates remain higher for longer, we would expect to do quite well over the long run. But it also provides upside optionality if eventually interest rates return to lower levels, which we think, and I will just explain to you why, I think that this could lead to significant upside as they close the gap to their net asset value, which in the case of a REIT like Camden could lead to 30 to 50% upside from here. And now the second reason, and that's that I still have very favorable long-term interest rate expectations. The recent surge in rates is a clear setback, but it's almost entirely caused by the war in Iran, which is a temporary factor in my opinion.

Before this war, real-time inflation was at right about 1% according to True Inflation. So inflation was very much under control. It was trending lower, and many of us were expecting the Fed to cut interest rates several times by the summer of 2027. There were major disinflationary forces in our economy with the slowing population growth as a result of people not having enough kids, but also much less immigration, specifically in the US, the growing wealth inequalities with Elon Musk becoming the first trillionaire, the excessive debt worldwide, and finally the technological innovations and particularly the AI revolution, which could turn into the biggest deflationary force of the century. These are the same trends that have been pushing inflation and interest rates lower for half a century. And these same forces are today in many cases stronger than they've ever been. And so I really don't think that this time is different. During the same 50-year time period of declining interest rates, we've had several periods of rising interest rates as we faced some temporary shocks, whether there were wars, crises, pandemics, but in every case, interest rates have eventually returned to even lower levels because of these strong disinflationary forces. This war is a clear short-term setback. But again, it doesn't change the long-term outlook in my opinion. And therefore, I think that's quite likely that as eventually the war comes to an end and/or the higher energy prices simply come down as a result of higher production, lower consumption, we will then see inflation come back down and interest rates will then follow later. This on its own could push rates a lot higher from here as many market participants currently seem to think that we're in a completely new interest rate era, which I'm not buying into. And the third reason why I'm buying the dip is because I expect accelerating rent growth for many property sectors already in the near term, likely in 2027 and 2028. And this is, by the way, partially caused by the rising interest rates. And that's an important point to consider here, and that's that higher interest rates are not all negative for REITs.

Yes, it increases borrowing costs and may lead to lower property values in the immediate term. However, it also has one major long-term benefit, and that's that it depresses new supply of properties, which will eventually give stronger pricing power to the landlords of existing properties that are in high demand. When rates are low, it's very easy for developers to build new properties and put in their model a low exit cap rate, and there's a lot of transactions happening. There's a lot of money getting poured into real estate and you can quite easily earn a profit if you're a developer. But then when rates are high, it's the exact opposite. It becomes very difficult. Typically, construction costs are higher than current property values, and so it's just not economical to build new properties, and this leads to very low supply. And that's what's happening now. Most new development projects have been put on hold already in the past years following the surge in interest rates, and I think that the recent hike in interest rates and the recent volatility and uncertainty will only further depress new supply of properties over the coming years, which will lead to a major acceleration in rent growth in many major property sectors including apartment communities, but also industrial, retail, and others. And so for that reason, I would argue that higher rates are a case of short-term pain for long-term gain for REITs that are well capitalized and own in-demand properties. The impact on the borrowing co

Hey, this is Julia. I run a small investment firm that specializes in REIT investing. And there are really three main reasons why I think that REITs are today offering a great buying opportunity for long-term oriented investors, especially following the

recent dip. The first reason is that the valuations are very opportunistic. Rates were already trading at discounted valuations and they've then dropped another 10 20% across the board and as a result they're now trading again at some of the valuations in many years. There

are even blue chip like rates with investment grade rated balance sheets now trading at 30 40% discount to the net asset values. And to give you a good example here, Camden Property Trust symbol CPT is one of the leading Sunb

Belt focused apartment rates. It has an A minus credit rating very low leverage and yet it's now trading at an implied cap rate that of nearly 7% even as it has recently sold some of its weaker and older assets at closer to a 5% cap rate.

So that's a very steep discount. And not only that, but they've shown that their properties, they have demonstrated that their properties are worth much more than what they are trading at. And they're using these proceeds to buy back

their own shares. I think that these very low valuations provide very significant margin of safety. And importantly, we really don't need anything exceptional to happen here for us to earn good returns. When you're already trading at a 7% implied cap

rate, you really don't need much growth to achieve very attractive total returns. If we now assume that the rate is going to enjoy 3 to 4% average annual long-term same property ny growth, you add to that a bit of leverage and

perhaps it manage to close some of its gap to NAB over time and you get quite quickly to very attractive total returns in the 15 to 20% average annual range.

So the very low starting valuations is my first important point. It provides great margin of safety because even if rates remain higher for longer, we would expect to do quite well over the long run. But it also provides upside

optionality if eventually interest rates return to lower levels which we think and I will just explain to you why I think that this could lead to significant upside as they close the gap to their net asset value which in a case

of a read like Camden could lead to 30 to 50% upside from here. And now the second reason and that's that I still have very favorable long-term interest rate expectations. The recent surge in rates is a clear setback but it's almost

entirely caused by the war in Iran which is a temporary factor in my opinion.

Before this war, real-time inflation was at right about 1% according to true inflation. So inflation was very much under control. It was trending lower and many of us were expecting the Fed to cut interest rates several times by the

summer of 2027. There were major disinflationary forces in our economy with the slowing population growth as a result of people not having enough kids but also much less immigration specifically in the US, the growing wealth inequalities with Ellen Mus

becoming the first trillionaire, the excessive debt worldwide and finally the technological innovations and particularly the AI revolution which could turn into the biggest deflationary force of the century. These are the same trends that have been pushing inflation and interest rates lower for half a

century. And these same forces are today in many cases stronger than they've ever been. And so I really don't think that this time is different. During the same 50-year time period of declining interest rates, we've had several periods of rising interest rates as we

face some temporary shocks. Whether there were wars, crisis, pandemic, but in every case, interest rates have eventually returns to even lower levels because of these strong disinflationary forces. this war is a clear short-term setback. But again, it doesn't change

the long-term outlook in my opinion. And therefore, I think that's quite likely that as eventually the war comes to an end and or the higher energy prices simply come down as a result of higher production, lower consumption, we will

then see inflation come back down and interest rates will then follow later. This on its own could push rates a lot higher from here as many market participants currently seem to think that we're in a completely new interest

rate era which I'm not buying into. And the third reason why I'm buying the Deep is because I expect accelerating rent growth for many property sectors already in the near term, likely in 2027 and 2028. And this is, by the way, partially

caused by the rising interest rates. And that's an important point to consider here, and that's that higher interest rates are not all negative for rates.

Yes, it increases borrowing costs and may lead to lower property values in the immediate term. However, it also has one major long-term benefit and that's that it depresses new supply of properties which will eventually give stronger pricing power to the landlords of

existing properties that are in high demand. When rates are low, it's very easy for developer to build new properties and uh put in their model a low exit cap rate and there's a lot of transactions happening. There's a lot of

money getting poured into real estate and can quite easily earn a profit if you're a developer. But then when rates are high, it's the exact opposite. It becomes very difficult. Typically construction costs are are higher than current property values and so it's just

not economical to build new properties and this leads to very low supply and that's what's happening now. Most new development projects have been put on hold already in the past years following the surge in interest rates and I think

that the recent hike in interest rates and the recent volatility uncertainty will only further depress new supply of properties over the coming years which will lead to a major acceleration in grand growth in many major property sectors including apartment communities

but also industrial retail and others. And so for that reason, I would argue that higher rates are a case of short-term pain for long-term gain for rates that are well capitalized and own in demand properties. The impact on the

borrowing cost won't be significant because in many cases they have low leverage, fixed rate, long debt maturities that are well staggered.

However, if this leads to under supply in their property sector, which I think it will over the coming years and not just in the next year, but I think we'll have a multi-year period, the three to five year period of under supply and

faster rent growth. This should then benefit them over the long run. And so my base case scenario now is that we're going to enjoy faster rent growth over the coming years which will build up a lot of hidden value in these rates which

may not be immediately recognized due to the higher interest expense. However, as interest rates and eventually come back down, these rates will shoot up a lot higher than many people imagine today.

Valuations are very low, rents are growing, and as interest rates drop back down, a lot of capital will make its way back from fixed income markets right into rates, beating up rates to much higher levels, and this could lead to

major upside. Hey, before I discuss a few picss that I'm buying, can you please be a huge fan and click the like button, subscribe to our channel if you think that this content is useful, will help me a lot to keep on growing. Thanks

so much in advance. The first rate that I want to discuss, it's called Sun Community Symbol SUI. This is one of the leading manufactured housing rates and I think it's a very interesting one to consider today specifically because

first of all it has a fortress balance sheet. It's debt that IA is below four times. That's very low. It's loan to value is about 35% so it's the equivalent of putting 65% down when buying your own home. It's again

conservative. So I don't expect a major impact from the higher interest rates on its borrowing cost. However, it owns a portfolio of manufactured housing communities that I think should benefit from higher interest rates as on one hand it's going to depress new supply

which is already very low for this specific asset class but more importantly it will increase the demand for these properties because affordable housing is growing in important when interest rates are high. The cost gap between buying a single family home or

buying a manufactured home and putting in a housing community that you where you're renting the plot. The cost difference is growing bigger as a result of the higher interest rates and this favors the lower cost alternative which is the manufactured housing and so I

expect the surge in interest rates to only lead to more demand for the properties owned by some communities which will lead to an acceleration in rent growth which has already been very strong in recent years at 3 to 5% per

year on average. Even then the rate is now heavily discounted. It has dipped with the rest of the rate market is trading at 30% discount to its net asset value. I think that we could see 30 to 40% upside from here even with fairly

conservative assumptions. If we expect interest rates to come back down, this could be a lot more of course if the upside happens in 3 years from now with now a much higher rent base and while you wait earning a 4 and a half%

dividend yield and the management is even buying back shares. Another rate that I like is Kimco realy ticker symbol Kim. This is one of my favorite retail rates. It has an A minus credit rating.

Again low leverage but a very desirable portfolio of grocery anchored serviceoriented strip centers a lot of which are in growing markets with high barriers to entry. There's very limited supply of these properties. In fact this property sector is already under

supplied enjoying 3 to 4% same property NOI growth consistently and this growth could even accelerate in the coming years if interest rates remain high. Yet the rate is today discounted trading at a roughly 25% discount to net asset

value suffering a near 5% dividend yield and we expect about 4% annual growth. Put it all together and you have very attractive total return prospects over the coming years. And again, it's coming from a defensive A minus rated blue chip

like REIT. Now, if you want to access the rest of my REIT portfolio, you can join me at HY Landlord for two week free trial. You won't be charged anything in the first 14 days and you'll gain immediate access to my full portfolio.

You can cancel anytime, no question asked. If the service is not for you, it will be the first link in the description of this video. Thank you very much for your interest once more.

Consider clicking the like button. See you my next one. Bye-bye.