Commercial real estate in the context of a multi-year demand boom can offer investors a variety of portfolios and income.
Seeing commercial real estate as an investment, Tom Zuber of Zuber Lawler spoke at the Benzinga Reopening Stocks Summit between Jan Selig of Safehold Inc (NYSE:SAFELY) and David Auerbach World Equity Group.
REIT in the game: Partly due to so-called reflationary trade – the increase in production in the economy as a result of the stimulation and resumption of the pandemic – real estate is booming.
In the example, Auerbach pointed to EPR properties (NYSE:EPR), formerly Entertainment Properties, a real estate investment fund that owns and finances lucrative amusement parks, theaters, resorts and other entertainment facilities.
“Not only are movie theaters reopening, but EPR is one of the partners and exclusive developers of a small concept called Topgolf, which is owned by Callaway,” he said.
“As we move out of COVID, we will focus on events like going to the cinema, training field, ski resort, water park, amusement park, indoor skydiving – which cannot be replicated on the Internet.”
Simply put, investors can look at names like EPR, Innovative Industrial Properties Inc (NYSE:IIPR), REIT power (NYSE:PW), AFC Gamma Inc (NASDAQ:AFCG), Easterly Properties Inc. (NYSE:DEA) and Simon Property Group Inc. (NYSE:SPG), among others, to exploit growth opportunities in real estate sectors such as hotels, shopping malls, offices, data centers, cannabis cultivation and cryptocurrency mining facilities.
“Capital raising is very popular in the REIT sector,” added Auerbach. “The reason is that REITs are 10-year Treasury bonds that are trading at around 1.25%. The average REIT dividend yield is less than 4%.
“You basically get about 275 basis points in your pocket for real estate purchases.”
Land lease Love: Land leases are agreements to build real estate during lease periods, which usually last 99 years. During the term, the rent is charged. Thereafter, landowners such as Safehold acquire any structures built on the surface of the earth.
Through its approach, Safehold, the only publicly traded land lease company, is democratizing property ownership by giving owners the best way to unleash the value of their buildings and investors with the opportunity to face a decades-long commercial real estate boom.
Drawing: Typical Safehold investment in a well located property.
“There is no other place in the investment world where two types of investment, land and construction, have to be together,” says Selig.
“In the corporate world, you don’t have to buy a company’s bonds to buy its shares,” he explained. “This is what happens to real estate, because there has never been a national company with an investment grade rating that could acquire this land and do it in a way that would actually add value to the building.”
In addition, Safehold offers three types of efficiency improvements for building owners.
The first two are capital and cost resulting from the separation of land and building, which reduces mortgage, tax and brokerage fees. Third, the risk of repayment for the entire part of the capital structure is reduced by attracting almost constant capital.
Investors are “provided with 100 years of passive investment daily liquidity and this is a powerful arbitrage,” Selig said, creating nearly 200 basis points of excess value for long-term, high-quality bonds.
“For the first time, we have made land lease investments available to individual investors. Investments that provide basic security, growing income from contractual cash flows, along with the potential for significant capital gains. “
Photo by Laura Tancredi from Pexels.