The main real estate story of the pandemic has, of course, been the exponential rise of (and recent slowdown in) single-family home sales, explains closed-end fund specialist Michael Foster, editor of CEF Insider.
What’s key is that we aren’t seeing a crash here — this is not Subprime Mortgage Crisis II. That’s critical because it shows that the Fed’s rate hikes are working as intended. It’s also important for our REIT funds, as it will likely encourage more investment in REITs as investors look for real estate exposure beyond the single-family-home market.
That’s a plus for us because our REITs have little exposure to single-family homes: the Nuveen Real Asset Income & Growth Fund (JRI), which we’ve held since late 2017, has almost zero exposure; it remains focused on infrastructure and continues to benefit from President Biden’s stimulus package, something most folks have forgotten about.
Similarly, the Neuberger Berman Real Estate Securities Fund (NRO) has just 3.6% of its portfolio exposed to single-family homes through REITs that own them and rent them out, with diversification that makes this one of the most attractive REIT CEFs, especially given its 8.7% yield. That, along with its strong performance in the last decade, may explain why NRO, in orange below, trades at par today, despite all the fear out there.
Meantime, the Aberdeen Global Premier Properties Fund (AWP) is also insulated from single family homes, and I particularly like its top holding: warehouse REIT Prologis (PLD), which owns the largest commercial real estate portfolio of any company in the world, with $148 billion in assets consisting of 4,703 buildings in 19 countries. This kind of vast reach typifies AWP’s portfolio.
Combine AWP with NRO, JRI and our other REIT CEF, the Nuveen Real Estate Income Fund (JRS), which holds preferred stocks and bonds, in addition to REITs, and you have a chance to buy (or add to) a nicely diversified portfolio of income-generating assets at attractive discounts.
There’s lots of room for extra upside with these funds, too, as vacancies have hit a record low in some commercial sectors, setting the stage for higher rents. On the apartment side, higher mortgage rates may cause renters to wait on buying a home, benefiting REITs like American Homes 4 Rent (AMH), AvalonBay Communities (AVB) and Equity Residential (EQR), which are top holdings of JRS, AWP and NRO.
