Commercial real estate, given a multi-year boom in demand, can offer investors diversity and income.
In unpacking commercial real estate as an investment, Zuber Lawler’s Tom Zuber led a Benzinga Reopening of the stock summit conversation between Ian Selig of Safehold Inc (NYSE: SAFE) and David Auerbach of the Global Equities group.
REITs in play: Partly because of so-called stimulus trade — an expansion of the economy’s output following the pandemic’s revival and reopening — real estate is booming.
In one example, Auerbach pointed out REP properties (NYSE: EPR), formerly Entertainment Properties, a real estate investment trust that owns and finances amusement parks, theaters, resorts and other income-generating entertainment properties.
“Not only are theaters reopening, but EPR also happens to be one of the exclusive partners and developers of a small concept called Topgolf which is owned by Callaway,” he said.
“As we come out of COVID, we’ll be focusing on those experience-type events – going to the movies, the driving range, the ski resort, the water park, the amusement park, the indoor skydiving – that you can’t. not reproduce online.”
Simply put, investors can look to names like EPR, Innovative Industrial Properties Inc (NYSE: IIPR), Energy REITs (NYSE: PW), AFC Gamma Inc. (NASDAQ: AFCG), Government Properties of Easter Inc (NYSE: DEA) and Simon Real Estate Group Inc (NYSE: SPG), among others, for exposure to growth opportunities in real estate sectors such as hotels, shopping malls, offices, data centers, cannabis cultivation and extraction facilities of cryptocurrency.
“Capital raising is very much in vogue in the REIT industry,” Auerbach added. “The reason being that REITs represent the 10-year Treasury, which is trading at around 1.25%. The average dividend yield for REITs is less than 4%.
“You basically get about 275 basis points in your pocket to acquire real estate.”
Love Land Lease: Land leases are real estate development agreements for lease periods that typically last 99 years. During the term, rents are collected. Afterwards, landowners like Safehold acquire all structures built on the land.
Through its approach, Safehold, the only publicly traded company focused on land leases, is democratizing real estate ownership, providing landlords with a better way to unlock the value beneath their buildings and investors with exposure to a multi-year boom in leasing. commercial real estate.
Chart: Typical Safehold investments in well-located real estate.
There is no other place in the investment world where two types of investments, land and buildings, are forced to be together, says Selig.
“In the corporate world, you don’t have to buy the company’s bonds to buy its stock,” he explained. “That’s what’s happened in real estate because there’s never been a national company with investment grade ratings to acquire that land component and do it in a way that actually improves the value of the building.”
Additionally, Safehold offers three efficiencies for building owners.
The first two are capital and cost due to the separation of land and structure, which reduces mortgage, tax and brokerage costs. Third, there is a reduction in maturity risk, across the entire capital structure, through the involvement of quasi-permanent capital.
Investors receive “daily passive investing liquidity over 100 years and that’s a powerful arbitrage,” Selig said of generating nearly 200 basis points of excess value for long-term, high-quality bonds.
“For the first time ever, we have made land lease investments available to the individual investor. An investment that provides security of capital, growing income through contractual cash flows, and the potential for significant capital appreciation.
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