Green Street



Pensions & Investments: REITs advantage in retail might be getting dulled

From Pensions & Investments:

Real estate investment trusts have an edge when it comes to investing in the retail real estate sector, but that edge could be wearing down a bit. Most malls in the U.S. are owned by REITs, according to real estate research firm Green Street Advisors LLC.

“The mall space is dominated by institutional REIT managers…About 80% of malls (are) owned by the public. The majority of the high-quality malls are owned by public REITs,” said Dirk Aulabaugh, managing director in Green Street’s Newport Beach, Calif., headquarters.

Other parts of the retail world – neighboring shopping centers, strip centers, power centers – are more fragmented in terms of ownership, Mr. Aulabaugh said.

What’s more, most of the value of other property types is in private hands, including real estate money managers. For example, REITs owned about 15% of senior housing, 10% of self-storage and %% to 10% each of hotels, industrial, office and apartments, according to a 2016 Green Street mall report, the most recent available.

A few pension funds have large direct investments in the retail sector. The $184.5 billion New York State Common Retirement Fund, Albany, the $305.5 billion California Public Employees’ Retirement System, Sacramento, and the Canada Pension Plan, Ottawa, were also on Green Street’s list of top 20 mall owners, according to the firm’s 2016 mall report.

“We are seeing quite a bit of change right before our eyes. The quality malls and shopping centers seem to be performing very well, Mr. Aulabaugh said. “As you move up the risk spectrum with shopping centers and malls, the picture with regards to the return required by investors is higher because expected rent growth and forecasted occupancy rates are lower and as a result, less appealing to investors.”