Real Estate Funds Fall May Have Plus Side
Real estate investment trusts have taken a drubbing this year as some investors have grown concerned the real estate portfolios these companies hold are overvalued. But a drop in share prices of REITs could signal an opportunity for investors willing to look under the hood at what a company owns.
The adage about the importance of location in real estate is easily forgotten when times are good but can prove prescient when times are difficult. REITs, which generally pay out most of the income they generate through their investment properties through dividends, can invest in a variety of holdings from office buildings to malls to apartment buildings to self-storage facilities.
Given the variety, investors should remember that some investments will hold up better and even thrive while others wither.
"We are very selective in the markets that we're invested in," said David Siopack, co-portfolio manager of the Charles Schwab Global Real Estate Fund, which invests in REITs and other real estate investment vehicles. He sees strength in commercial property markets in many big cities, particularly those in Asia, and looks for investments in those areas.
The fund uses metrics that scored big cities in Asia such as Singapore as most likely to show the best rental rate growth in the next 18 to 24 months, followed by Europe and then North America. He said the stronger locations generally show employment growth at or above the national average and have a finite amount of land for development, keeping prices high.