The resounding threat of higher interest rates have significantly decreased REITs enthusiasm this 2015, but a market expert thinks things are just being blown out of proportion, Gregg Greenberg of The Street reports.
For Ethan Penner of Mosaic Real Estate Investors, the Federal Reserve rate hike, if at all, is not as horrible as what the entire real estate industry is being made to believe.
"This whole hullabaloo about a 25 basis point increase on Fed funds (the Federal funds rate) is really a non-event," said Penner. "And I think it will have very little impact on anything including real estate."
Penner has his focus on the residential real estate now, as well as similar types of properties that are "less tied to economic vibrancy."
"I don't see the global economy taking off and so I wouldn't be as sanguine about things like office buildings in CBD (Central Business District) areas," said Penner. "I would not be as sanguine about high-end malls."
There also should not be so much complication with liquidity concerns and real estate investing the way they are being made to be; saying that they are either misunderstood or unnecessarily magnified. He also adds that equity inventors are more likely to take bigger discounts when scrambling for cash during a downturn than real estate investors.
"If you look at the last three or four major downturns, the S&P 500 and major stocks like Exxon Mobil (XOM) and Apple (AAPL) dived 50% from their previous highs and that's a steep price to pay for liquidity," said Penner. "And I think some of the better property types -- like apartments in Santa Monica, Calif. -- did not fall as steeply as 50%, in fact, far less."
When you bring in true liquidity, Penner advices investors to prepare two or three years worth of cash and Treasuries considering that "nothing else is truly liquid without a steep price discount."
As a final note, Penner cited Miami and New York City for having benefitted from outside foreign investments also known as flight capital for the past years, or money parked in the US, and analyzes that a slightly stronger dollar will not significantly affect flight capital.
He also noted how high-end apartment markets in coastal cities are beginning to cool off.
"We may see a correction in valuations on the ultra-high end because I think things have gotten kind of crazy," said Penner.
