Recently, I wrote an article entitled “Billionaire Investor Says ‘Buy REITs’” to discuss how Starwood’s CEO, Barry Sternlicht, was pounding the table on REIT investment opportunities. Here is what he said:
“By the way, when credit comes back, you are gonna see REITs take off. REITs are on sale. There are some unbelievable bargains in REITs. We did the same thing during the pandemic. We bought a dozen stocks all over the world and we had a 70% IRR on that stuff. We are already buying some stuff in the public market because I do think that rates are going down.” Barry Sternlicht.
Today, we are going to contrast that with an opposing view.
Billionaire investor Charlie Munger recently said in an interview that he expects a lot of pain in the real estate sector.
In case you are not familiar with Charlie Munger, he is the right-hand man of Warren Buffett. They have both led Berkshire Hathaway Inc. (BRK.B) for decades, and their investment firm has massively outperformed the rest of the market (SP500) under their leadership.
So when he talks, we listen, and he is sending a clear warning to real estate investors:
“A lot of real estate isn’t so good anymore. We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.”Charlie Munger.
A lot of investors took this as a warning against investing in REITs (VNQ), which are publicly listed real estate investment trusts.
I know this because I have received many messages from investors quoting Charlie Munger as a reason to stay out of REITs.
They are down substantially since the beginning of 2022, and Mr. Munger appears to be warning us of further losses ahead:
But before you panic and run away from all REITs, I want you to take a closer look at what Mr. Munger is saying.
He warned us about two specific property sectors: office buildings and malls.
Then he also said “other properties.” I will assume that he is here referring to single-family homes, which are today unaffordable for most people.
But here’s the thing:
It is only a tiny minority of REITs invest in offices, malls, or single-family homes. Less than 10% of the total market cap of the REIT sector is invested in these properties. So yes, these property sectors may be facing some risks, but they are a small minority.
Charlie Munger appears to be bearish on some of these REITs, and so am I. To give you an example, I sold my position in SL Green (SLG), a NYC-focused office REIT, back in 2021 at a roughly 3x higher share price than that of today.
I have also warned investors about the worrying long-term outlook of outlet centers such as those owned by Tanger Factory Outlet Centers (SKT).
So I agree with Charlie Munger that some property sectors are facing severe challenges.
But what a lot of investors appear to have missed here is that 95% of REITs don’t invest in these challenged sectors. They are mainly invested in strong property sectors that are enjoying high demand and growing rents. Some examples include:
Most of these properties continue to perform very well, and they make up the vast majority of the REIT sector.
Here is a table that I put together to highlight the recent growth of some of these REITs:
You will note that I did not cherry pick REITs from one specific property sector. I included REITs from all sorts of sectors, including residential, healthcare, strip centers, industrial, and even malls.
The main takeaway is that rents keep growing at a solid pace across most property sectors, and this is reflected in the chart below. Rents are growing faster than usual because inflation remains high:
But don’t take it just from me. Starwood is one of the biggest landlords in the world, owning $10s of billions worth of properties, and here is what they said recently.
“You have to back up. Other than the office asset class, real estate is actually performing really well. Apartments are full. Single family rentals are full. Hotels are REALLY full. There’s no overbuilding.
What I would like viewers to understand is that the asset class, commercial real estate is actually in very good shape. We are not seeing declines in rents overall in almost anything.
Industrial is strong. Apartments are strong. We have a non-traded REIT and our underlying business is terrific.
What has happened to us is that interest rates have gone up, but if the credit market is right, they will go back down. But the long term effect of rising interest rates is that there is going to be much less supply. So we think that the rent growth will accelerate coming out of this. We will come out of this. We always come out of this. We have never had a recession that didn’t end up with a recovery.” Barry Sternlicht, CEO of Starwood (emphasis added).
So yes, offices and shopping centers may be facing challenges, but they are tiny sub-segments of the REIT market.
The REIT market is vast and versatile and most REITs specialize in strong property sectors that continue to enjoy growing rents.
Here’s the Opportunity
A lot of media headlines keep referring to offices and malls as “commercial real estate,” and it is leading to a lot of confusion.
To give you a few examples:
This recent headline on Seeking Alpha said that Charlie Munger is sounding a warning on the US. commercial property market:
That is not technically wrong, but that is not really what he is doing.
The commercial property market is very vast and versatile, as we explained earlier. It includes 20+ different property sectors, and most are doing just fine.
Mr. Munger is sending a warning about a few specific sub-segments of the commercial property market, not about the entire commercial property market.
Two very different things.
Similarly, CNBC routinely refers to office REITs as “commercial real estate,” seemingly not understanding that offices are just one property sector among many others:
(On a quick side note: CNBC apparently also does not realize that Alexandria Real Estate Equities, Inc. (ARE) isn’t an office REIT… It is a life science REIT.)
All of this is causing a lot of confusion, and it has led to the indiscriminate selling of REITs – including even the good ones that are actually performing very well.
Blackstone Inc. (BX), the biggest private equity investment firm in the world talked about this on their most recent Q1 conference call:
“We talked here at the beginning of the call about the massive differentiation across real estate. And now at times you see people just pulling back regardless of the sector they’re exposed to.” John Gray.
Essentially what has happened is that all REITs have crashed as if they were all going through severe difficulties, when in reality, the challenges are mainly affecting one small segment: offices
This has led to a lot of very attractive investment opportunities for long-term-oriented investors because even good REITs are now priced at large discounts relative to the fair value of their properties. Just to give an example: Alexandria, the life science REIT, has been able to hike its rents by 20%+ as its lease expired, but despite that, its share price was cut in half, and it is now priced at a 40% discount to the value of its assets.
According to some studies, REIT valuations are now reminiscent of the great financial crisis:
I believe that this is a great opportunity.
How often do you get the change to buy good real estate at 50 cents on the dollar… with the added benefits of liquidity, diversification, and professional management.
As a reminder, REITs nearly tripled in value in the two years following the great financial crisis as their valuations recovered to more reasonable levels:
Those who had the courage to buy REITs in 2008 made a fortune in the recovery. I believe that those who buy REITs today will also earn large profits in the coming years.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
In the quest to find cities where renters can enjoy the best of all worlds, a recent study analyzed 24 metrics across three key categories—Housing & Economy, Quality of Life, and Community. The study ranked the 100 largest cities in Canada to determine which ones offer the most to their renters.
Here are the top 10 cities that emerged as the best for renters in 2024:
St. John’s, NL
St. John’s, Newfoundland and Labrador, stand out as the top city for renters in Canada for 2024. Known for its vibrant cultural scene, stunning natural beauty, and welcoming community, St. John’s offers an exceptional quality of life. The city boasts affordable housing, a robust economy, and low unemployment rates, making it an attractive option for those seeking a balanced and enriching living experience. Its rich history, picturesque harbour, and dynamic arts scene further enhance its appeal, ensuring that renters can enjoy both comfort and excitement in this charming coastal city.
Sherbrooke, QC
Sherbrooke, Quebec, emerges as a leading city for renters in Canada for 2024, offering a blend of affordability and quality of life. Nestled in the heart of the Eastern Townships, Sherbrooke is known for its picturesque landscapes, vibrant cultural scene, and strong community spirit. The city provides affordable rental options, low living costs, and a thriving local economy, making it an ideal destination for those seeking both comfort and economic stability. With its rich history, numerous parks, and dynamic arts and education sectors, Sherbrooke presents an inviting environment for renters looking for a well-rounded lifestyle.
Québec City, QC
Québec City, the capital of Quebec, stands out as a premier destination for renters in Canada for 2024. Known for its rich history, stunning architecture, and vibrant cultural heritage, this city offers an exceptional quality of life. Renters benefit from affordable housing, excellent public services, and a robust economy. The city’s charming streets, historic sites, and diverse culinary scene provide a unique living experience. With top-notch education institutions, numerous parks, and a strong sense of community, Québec City is an ideal choice for those seeking a dynamic and fulfilling lifestyle.
Trois-Rivières, QC
Trois-Rivières, nestled between Montreal and Quebec City, emerges as a top choice for renters in Canada. This historic city, known for its picturesque riverside views and rich cultural scene, offers an appealing blend of affordability and quality of life. Renters in Trois-Rivières enjoy reasonable housing costs, a low unemployment rate, and a vibrant community atmosphere. The city’s well-preserved historic sites, bustling arts community, and excellent educational institutions make it an attractive destination for those seeking a balanced and enriching lifestyle.
Saguenay, QC
Saguenay, located in the stunning Saguenay–Lac-Saint-Jean region of Quebec, is a prime destination for renters seeking affordable living amidst breathtaking natural beauty. Known for its picturesque fjords and vibrant cultural scene, Saguenay offers residents a high quality of life with lower housing costs compared to major urban centers. The city boasts a strong sense of community, excellent recreational opportunities, and a growing economy. For those looking to combine affordability with a rich cultural and natural environment, Saguenay stands out as an ideal choice.
Granby, QC
Granby, nestled in the heart of Quebec’s Eastern Townships, offers renters a delightful blend of small-town charm and ample opportunities. Known for its beautiful parks, vibrant cultural scene, and family-friendly environment, Granby provides an exceptional quality of life. The city’s affordable housing market and strong sense of community make it an attractive option for those seeking a peaceful yet dynamic place to live. With its renowned zoo, bustling downtown, and numerous outdoor activities, Granby is a hidden gem that caters to a diverse range of lifestyles.
Fredericton, NB
Fredericton, the capital city of New Brunswick, offers renters a harmonious blend of historical charm and modern amenities. Known for its vibrant arts scene, beautiful riverfront, and welcoming community, Fredericton provides an excellent quality of life. The city boasts affordable housing options, scenic parks, and a strong educational presence with institutions like the University of New Brunswick. Its rich cultural heritage, coupled with a thriving local economy, makes Fredericton an attractive destination for those seeking a balanced and fulfilling lifestyle.
Saint John, NB
Saint John, New Brunswick’s largest city, is a coastal gem known for its stunning waterfront and rich heritage. Nestled on the Bay of Fundy, it offers renters an affordable cost of living with a unique blend of historic architecture and modern conveniences. The city’s vibrant uptown area is bustling with shops, restaurants, and cultural attractions, while its scenic parks and outdoor spaces provide ample opportunities for recreation. Saint John’s strong sense of community and economic growth make it an inviting place for those looking to enjoy both urban and natural beauty.
Saint-Hyacinthe, QC
Saint-Hyacinthe, located in the Montérégie region of Quebec, is a vibrant city known for its strong agricultural roots and innovative spirit. Often referred to as the “Agricultural Technopolis,” it is home to numerous research centers and educational institutions. Renters in Saint-Hyacinthe benefit from a high quality of life with access to excellent local amenities, including parks, cultural events, and a thriving local food scene. The city’s affordable housing and close-knit community atmosphere make it an attractive option for those seeking a balanced and enriching lifestyle.
Lévis, QC
Lévis, located on the southern shore of the St. Lawrence River across from Quebec City, offers a unique blend of historical charm and modern conveniences. Known for its picturesque views and well-preserved heritage sites, Lévis is a city where history meets contemporary living. Residents enjoy a high quality of life with excellent public services, green spaces, and cultural activities. The city’s affordable housing options and strong sense of community make it a desirable place for renters looking for both tranquility and easy access to urban amenities.
This category looked at factors such as average rent, housing costs, rental availability, and unemployment rates. Québec stood out with 10 cities ranking at the top, demonstrating strong economic stability and affordable housing options, which are critical for renters looking for cost-effective living conditions.
Québec again led the pack in this category, with five cities in the top 10. Ontario followed closely with three cities. British Columbia excelled in walkability, with four cities achieving the highest walk scores, while Caledon topped the list for its extensive green spaces. These factors contribute significantly to the overall quality of life, making these cities attractive for renters.
Victoria, BC, emerged as the leader in this category due to its rich array of restaurants, museums, and educational institutions, offering a vibrant community life. St. John’s, NL, and Vancouver, BC, also ranked highly. Québec City, QC, and Lévis, QC, scored the highest in life satisfaction, reflecting a strong sense of community and well-being. Additionally, Saskatoon, SK, and Oshawa, ON, were noted for having residents with lower stress levels.
For a comprehensive view of the rankings and detailed interactive visuals, you can visit the full study by Point2Homes.
While no city can provide a perfect living experience for every renter, the cities highlighted in this study come remarkably close by excelling in key areas such as housing affordability, quality of life, and community engagement. These findings offer valuable insights for renters seeking the best places to live in Canada in 2024.