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Q1 2023 REIT Performance & Sector Update, With David Auerbach
Dislocations in the commercial real estate market have continued in 2023, with some sectors performing well, and others trailing by a wide margin.
David Auerbach, managing director at Armada ETF Advisors, joins WealthChannel’s Andy Hagans to discuss Q1 2023 sector performance in the REIT universe, plus where investors might see value right now.
Watch On YouTube
- A summary of the recent report from S&P Global which reported REIT performance in Q1 2023.
- Why REITs often have professional management whose interests are well-aligned with those of shareholders.
- Background on the self-storage sector, and why self-storage REITs have had such strong performance recently.
- An update on industrial REITs, and why companies like Amazon are now being more selective with their industrial real asset acquisitions.
- David’s predictions on the multifamily sector, and why it will continue its strong performance in the years ahead.
Featured On This Episode
- HAUS – Residential REIT Income ETF (Armada ETF Advisors)
- REIT stocks underperform broader market in Q1 (S&P Global)
Today’s Guest: David Auerbach, Armada ETF Advisors
- Armada ETF Advisors – Official Website
- Armada ETF Advisors on LinkedIn
- David Auerbach on LinkedIn
- David Auerbach (@DailyREITBeat) on Twitter
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: David, welcome back to the show. In our last episode, we discussed valuations with publicly-traded REITs versus private real estate, some exciting announcements from Armada ETF Advisors. But as I sort of teased in our last episode, now we’re gonna move on to a sector update. As we begin Q2 2023, we’re sitting here on April 4th, I don’t know exactly when this episode will release, we just got in the Q1 data from S&P Global, this report that you sent me, and I’ll make sure to link to this report in the show notes, and a lot of interesting data. But David, the headline, to me, here, before we even get into the sectors, is that REIT stocks overall underperformed the broader market.
David: Yep. That’s true. First of all, thanks for having me back again, Andy. Great to be here with you, as always. We’re here to talk about REITs, and…
Andy: Why are they underperforming? I mean, you know, you’d think, in recessionary times, there’d be a, you know, to me, REITs are almost, I know they can have a lot of volatility, but in a way, they’re more defensive, you know, focusing on dividends, and, like, some of them are very transparent, that they’re responsibly using leverage. So, like, what’s the problem? What’s weighing down REIT stocks right now?
David: Well, I hate to point the fingers at anybody in particular, but I think we can thank our friends in Washington, and Mr. Powell, and the Federal Reserve. Unfortunately, whenever anybody talks about REITs, the first they think about is interest rates. REITs are an interest rate play. And what we’ve seen over the…
Andy: Is that true though, David? I mean, do you think that’s true, that that’s what people think?
David: No. I don’t. Because, from where I sit, I compare the REITs to the 10-year treasury yield, because that’s usually the proxy, is what they say, is REITs and a 10-year treasury. And historically, what had happened, I’m pulling into my Bloomberg here so I can give you some good data. Historically, what had happened was that the average REIT dividend yield, like, was greater than the 10-year treasury yield, meaning average REIT dividend yield is 5.25%. The 10-year treasury is trading at 3.25%. So, you’ve got 200 basis points in your pocket to invest in REITs versus fixed income. But what happened during COVID was this, right?
And so, yields collapsed, the 10-year treasury collapsed. There was still that gap that was there. But then as the yield started climbing back up again and recovery, but the dividends hadn’t caught up again, what happened was that the treasuries became more attractive than the REIT dividend yield. Where we sit right now, on my screen, the 2-year treasury’s at 3.84%. The 10-year is at 3.35%, and the 30-year is at 3.60%. So, it’s more attractive to own debt coming due in 2 years than it is for the next 10 to 30 years, okay? And so, investors are realizing, who cares about dividend income when I can get 4% on 2-year notes right now. And I think until the Fed starts adjusting the cycle of reducing interest rates, you know, that’s when you’ll see the REIT investors really come back in droves, because, again, of that yield sensitivity. We’re focused on dividends, okay? And again, as I…
Andy: David, I gotta pause you there with the treasuries, okay? And this is why I like REITs. They have a yield, but the yield can grow. You know, with treasuries, I hear these numbers that treasuries are paying… By the way, I’ve been this way as long as I’ve been an investor. So, I’m 39, so this has been my entire investment career. I cannot roll my eyes hard enough at taxable bond yields. Because it’s been financial repression since I’ve been alive, you know, on an after-tax basis. Great. I get to buy this stupid bond, and in real terms, pay you guys money for the privilege of owning this bond? I mean, and by the way, I own bonds, I own bond ETFs in my portfolio, but…
David: Are we talking about treasuries, or are we talking about private REITs here? Sorry, I had to throw that in.
Andy: Well, I just, you know, I guess I understand the appeal of bonds. Again, I own them, and I understand the need for dry powder. But just fundamentally, you know, I have a hard time, like, to me, whatever demand there is for REITs, it’s at least organic. It’s institutional and individual investors buying it. Whereas with treasuries, it’s the government buying their own crap, and manipulating the price and yield.
David: Not only our government. It’s other sovereign wealth governments that are buying our bonds and stuff. Remember, this is, like, you know, the be-all, end-all. You know, I focus on the REIT fundamentals, the operations themselves. You know, again, so, we’re talking about, you know, for us, we have a residential REIT income fund. I’m focused on the apartment fundamentals. As we’ve talked about in other presentations before, we can’t control stock prices. I have no control over my underlying constituent stock prices. We can focus on the fundamentals. Are the rents growing? Are the property numbers going up? Is the dividend going up? You know, fundamentals that appear to be fairly solid, even if the stock price doesn’t reflect it. You mentioned we’d look at the first quarter numbers, and we saw that industrial and self-storage have done so well. In a previous episode, we talked about the triangle, and why industrial has been, you know, such a powerhouse over the past couple of years. But what about self-storage? Why has self-storage done so well? Well, there’s a couple of different answers that we can go into there.
Number one, we’re hoarding more than we ever have in the past. Pardon my language. We’ll probably have to edit that. We’re hoarding more stuff than we ever have before. But also, there’s this merger that’s out there in self-storage land. One of the largest publicly-traded REITs, Life Storage, is being acquired by another publicly-traded REIT called Extra Space. Ticker’s EXR. Well, Life Storage, Extra Space, and the big daddy, Public Storage, in the space, who submitted the first bid in this year for the stock, that’s what caused that premium to run up for the self-storage REITs. Industrial, of the sector, always in demand. We’re always ordering packages from Amazon, and, you know, pick your favorite online retailer.
Andy: Well, I gotta pause you there on industrial. Okay. So, self-storage. I mean, to me, that’s just a powerhouse of a sector. As you say, we’re always buying more stuff. And people are always getting divorced, and, you know, or having life changes, so… That’s, and it’s even that sector in particular, even in a recession, it seems to outperform, but I’m like, but it also performs well during expansionary periods.
David: Absolutely. Absolutely. I’ll give you a quick story, real quick, about self-storage. I was in New York a couple of weeks ago, in an Uber. And, at the stoplight, my Uber driver is on his phone, and he’s doing storage locker auctions. Remember the “Storage Wars,” the TV show? He’s doing Storage Wars on his cell phone as he’s driving around the block. And I didn’t say anything. I mean, I was kind of fascinated by it. And it gives you the full locker. You see everything that’s in there. And he’s sitting there bidding. It’s like, oh, I love this. My buddies and I, we have this side business. We have this warehouse, this industrial warehouse space, that we take all the stuff to, we process it, we turn around and flip it. We’re making money doing this. And this guy’s doing this, this guy’s doing this. He’s, you know, he’s driving the Uber, he’s doing self-storage. He’s buying cars… Like, I mean, he was doing everything.
And so, there is always going to be demand for self-storage properties. What’s cool about that sector, though, you know that is not a sector that’s predominantly owned by REITs, that there’s more private players that own storage than in the REITs. We all see public storage everywhere. You know, they’re in every town. But yet, the sector itself is dominated by the private players. There’s more mom-and-pop storage units out there than there are…
Andy: Very fragmented.
David: Yeah. So, again, this is a sector that’s really, frankly, continues to be ripe for consolidation. And the only way that these big guys are able to grow, like Public Storage, is to go out and buy portfolios of mom-and-pop companies.
Andy: Yeah, no. Well, we see, you know, you see, like, small companies rolling up to become mid-size, you see mid-size rolling up to become large private players, and then ultimately, the large private players, I think the plan is they can be acquired by these publicly-traded REITs, so kind of makes sense. That’s kind of a bottom-up, you know, roll-up type story. Very recession-resistant. But you mentioned also industrial, and, you know, the triangle that you showed us in the last episode that we recorded. But I think it was just a headline I saw today, maybe. It’s April 4th. Amazon announcing more job cuts. They’ve had some slowdowns in their volume.
And so, from the article, this article from S&P Global, that I’ll link to in the show notes, it says the Dow Jones U.S. Real Estate Industrial Index followed next, with an 8.9% return for the first quarter, meaning Q1 2023. So, industrials performed really well, but then on the other hand, you know, a couple days after the quarter ends, I’m hearing Amazon letting some more people go. So, for me, that’s… Why is that performing so well, if, at the same time, we’re hearing, you know, Amazon’s letting people go?
David: This is a great… I love this. I mean, again, we could spend a whole half-hour on this topic just by itself. Okay. So, Amazon. If you look at what happened during COVID, Amazon was taking down any and all space, no questions asked. “You got space for rent? I want it.” We’re taking our hands off. Well, now that we’re coming on the other side of COVID, they’re realizing, “Oh, I didn’t really need all that space” in, you know, Eagle River, Wisconsin, as an example. So, you’re realizing that they’re getting more… They’re not just, you know, mass fire-selling their industrial profile. If anything, they’re just pruning some of the stuff that they had overexpanded to.
Andy: I see. So, I mean, to make an analogy to multifamily, it’s like, in 2020, 2021, buy multifamily anything, you win. It’s like, who cares? You just can’t buy it fast enough, you know, kind of a attitude. So, that’s kind of like what industrial was during COVID. It was like, hey, we gotta buy this stuff as fast as we can and ask questions later, because we are way under-resourced when it comes to…
David: It was a race to get as close to the consumer as they possibly could, get towards that end consumer as quickly as they possibly could. But let’s highlight, though. Forget the triangle stuff that we talked about with Amazon earlier. You know, you’re talking about, in that same story, they talk about companies like Terreno Realty, EastGroup Properties, Prologis. You know, each of these guys have their own skill set. EastGroup, Sun Belt-focused industrial player. What’s been a great market during the past couple of years through COVID and beyond? The Sun Belt. It’s like shooting fish in a barrel. Prologis, the largest global industrial REIT that’s out there. Literally spans the globe. They know where the puck is going. They know what the world is like over in Asia, and Mexico, and here, you know, local sharpshooter, wherever they’re at.
Now, a company that wasn’t mentioned in the article, but that kind of plays into this, is a company called Rexford, R-E-X, and they’re based out of Southern California. When you think of Port of Los Angeles and LA industrial, it’s Rexford. And the reason why I mention Rexford is, if you go back several years ago… It’s a perfect example. Terreno is quoted in this article, and usually Terreno is not a stock that would come out top of mind if we’re listing off industrial REITs. Several years ago, if I had said, “Name the industrial REITs,” Rexford would not have been a name that would have come out very quickly, because it was a smaller name. Now, they’re, like, the second-largest name, behind Prologis. Even though they’re only focused on Southern California and the Port of LA, they’re literally the second-largest global industrial REIT that’s out there behind Prologis. So it shows you how things could dramatically change in some of these sectors, just over the course of a couple of years.
Andy: Totally. One thing that’s interesting with REITs, though, is, you know, they’re legally obliged to pay out 90% of their earnings in the dividend, right? And so, I’m thinking of, you know, with all these sectors, even the difference in performance, or in, you know, valuations, to some extent, it makes sense. But I feel like there should be less divergence intrinsically. Because whether you’re in a good sector or a dog sector, there’s only so much capital that you can kind of reinvest for growth. Right? So, like, what are investors… if investors are buying into REITs, in some sector versus others, with much lower dividends or much more of a premium, like, what are you really buying as an investor? Is it just the safety of that dividend? Or is it more just…
David: Boy, you just gave me, like, a white paper type of topic. That’s a great question, Andy. So, thanks for that curveball there. You know, that’s a great question. When you’re buying these companies, I think you’re buying a couple of different things. You’re buying the strength of the management team. You’re buying tried-and-true, bricks-and-mortar assets. You’re buying an income stream. Is it a Starbucks, where it’s, you know, in business 10 hours a day, 12 hours a day, whatever the number is, and you’ve got that steady stream of customers? Is it a hotel, and your customer’s a one-night stay? Is it an apartment, where your contract’s a one-year stay? You know, it’s important…again, know what’s under the hood of the car. Like, you know how, when a company, like, they talk about a mutual fund’s holdings, or an ETF’s top holdings, you know, “the top 10 represents X percentage of the portfolio.” It’s the same thing for some of these properties.
Andy: You’re buying because you’re buying the leases, right? So, when you’re buying a multifamily REIT, you’re basically, you’re buying up their revenue streams that they’ve contracted. And same with self-storage, or hotels. Hotels might be a daily, they can reprice daily, and there’s pros and cons to having…
David: But if I own a 50-hotel portfolio, and I buy one of these companies, really, the bulk of my numbers and my revenue stream’s gonna come from, let’s say, the top 20% of that, right? So, you know, the best of the best, where I’m getting, you know, $1,000 a night RevPAR, whatever it is, versus the bottom guy that’s getting $150 a night in RevPAR, and what flows to the bottom line? So, you’re buying a dividend income stream. It’s a hokey saying, but it has some merit to it. “What’s the safest dividend? The one that just got raised.” And so if you’re able to buy a consistently-growing dividend income stream, of, you know, bricks and mortar, assets that you can look, see, feel, touch, smell, taste, drive by and everything, like, that’s what you’re owning.
But it’s also, you’re owning a story. You’re owning a management team. Like, “Hey, I got a bridge in Manhattan that I wanna sell you, and by the way, it’s in a REIT. You know, if you bought my share of this REIT, you could buy a stake in this bridge in Manhattan.” But in all seriousness, if I could tell you that you can go out, buy, again, our fund, and you can have a fractional ownership in literally hundreds of thousands of residential units from coast to coast, in some of the most desirable markets, and it’s only gonna cost you $15 a share, like, that’s a pretty attractive value proposition.
Andy: And by the way, it’s probably a discounted to book value, right? Do you calculate discounted to book value with underlying assets.
David: We do track the premium to discount, and obviously… We are trading at a discount to where we came to mark, and what we feel that our stock is worth right now.
Andy: Not a bad thing, David. That’s not a bad thing. It’s basically, you know, our last episode, talking about, you know, investors like to buy things when they’re on sale, and especially residential real estate. Very popular thing to buy when it’s on sale.
David: If there’s some dry powder on the sidelines, looking to buy some attractively-priced assets trading at discounts to NAV, my contact info will be provided on this podcast.
Andy: Well, just, David, for our video viewers, they could just look at the backdrop behind you. The ticker is HAUS, H-A-U-S. Okay. So, that’s trading at a discount. But it’s an interesting conceptual question, though, because, you know, you’re buying the safety of the dividend. I get it. But with stocks, like, with growth stocks, or even dividend stocks, they’re retaining more earnings, on average, I would think, then an average REIT is, just because of the structural regulatory requirements on a REIT.
David: Let’s take a step back real quick, though. Remember, a REIT is a tax structure. The tax structure simply states that a REIT has to pass through 90% or more of the net taxable income to shareholders, in the form of a dividend. Now, that’s where the question becomes what you’re talking about, reinvesting, pushing through to the bottom line, there’s only so much that they can do themselves before pushing the Send button out to their investors. But, like, if you look at a company like Realty Income, let’s say, that has grown their monthly dividend for literally several hundred months in a row, you know, they’ve obviously got that figured out. We’re reinvesting proceeds into our company to fund our deal pipeline, whatever it is, but we’re also keeping our investors happy because we’re consistently growing this monthly dividend, like we tell them we’re going to. And so, if you’re able to kind of have the best of both worlds, have your cake and eat it too, we’re able to fund our, you know, develop internally, grow our internally, plus make our investors happy by pushing out and growing dividends to them, I think it’s the best of both worlds there.
Andy: Yeah, David, you know, in this conversation, and in this last episode we recorded, a recurring theme from you has been professional management. And I think it’s really interesting, because…
David: Which is a shame, because I’m so unprofessional.
Andy: No, no, you’re not. No, no. Colorful. “Colorful” is the word I would use, David. But some of that, in my opinion, is imposed by the REIT structure, you know, in that requirement of paying out income in the form of dividends. And to me, this is, this actually only occurred to me fairly recently, I should say. One of the appeals of private equity, to me, and I think this is maybe a little strange, or might surprise some people, is I think in the public markets, we’re starting to see more and more distorted incentives and disincentives. You know, I’m thinking of, like, if you look at what happened to Twitter, and, you know, how they were able to, whatever, jettison 80% to 90% of their staff, and you’d say, well, maybe the company is bumpy now, or whatever. But there’s no question that they had way too much payroll, you know, in their company. And it’s like, well, what was the board of directors doing before they accepted this offer to go private? Why didn’t they care about maximizing… It appears to me that they just did not care, really, about aligning their company towards delivering a profit.
So, in the public markets, corporations, I’m talking about stocks, not necessarily REITs, but just a lot of management of publicly-traded corporations, they appear to care more about image, or social plaudits, or ESG, or whatever. And I’m not even taking a stand on any of those, except I’m just saying, we ought to know that a basic theory of capitalism is that they’re supposed to be trying to maximize value for shareholders. In a evidentiary basis, it doesn’t seem like they’re always doing that, to me. But in the world of REITs, there’s this structure that seems to encourage management to just behave so much more disciplined than what I’d see in other types of vehicles.
David: But you have to remember that those REIT management teams own so much stock in their companies. They’re so well-entrenched with the shareholders…
Andy: Bingo. No, that’s it, David. That…right there.
David: …because REITs are a dividend play. Remember, that’s the key there, REIT dividend income. Times of volatility and safety, go to the dividend-producing sectors, utilities, commodities, REITs. I have 10 million shares in compensation through my stock options package and everything. We just raised our dividend by 10%. Just got an extra million-dollar bonus this quarter. I wanna make sure we do just as good, because I’m a shareholder, just like grandma and grandpa who live in The Villages. They have just as much of a voice in this entity as I do. So, I think that’s the key, is that’s it’s how entrenched these management teams are with their existing shareholder base.
Andy: And do you think that that’s a difference between REITs and other types of publicly-traded corporations, that there’s more skin in the game?
David: Every sector. Every sector on Wall Street. Absolutely.
Andy: Interesting. So, to me…
David: That’s my opinion. I could be completely wrong, but that’s my opinion. Absolutely.
Andy: Yeah. And, I mean, well, just, if you look at the board structures of some of these other types of public companies, they just, you don’t see a lot of skin in the game, or you don’t see enough skin in the game. Okay.
David: I think it’s a reason why so many people try to get into the REIT C-suites, the REIT company, you know, the management teams themselves, because of that. Because of how the compensation works for a lot of these guys, and the structure, you know, you get that call up to the major leagues, to the big leagues, and you’ve made it.
Andy: Totally. Okay. So, we wanted to go through these sectors. We have about 10 minutes or so left remaining, and I wanna hit some more. We’ve talked about industrial. We talked about self-storage. So, back to this report. Office has just tanked. So, I quote from, the report, “Office REIT stocks tanked during the first quarter, with the Dow Jones U.S. Real Estate Office Index posting a return of negative 14.7% for the quarter.” Wow, down 14 points. They were already down. I mean, you know, office is already kind of considered a dog right now. How are they down another 14.7%, David?
David: I mean, the headlines don’t go away. We see how bad some of these New York office guys have been struggling over the past year or so, but the foot traffic, it’s coming back a little bit, but, you know, it’s not there. I just did an interview earlier today, and so we have some publicly-traded guys that talk about, you know, a couple of their properties. “We’re 100% leased at the newest property in Manhattan, and we’re 75% pre-leased on this new property that’s coming later this year. We’re above expectations.” That’s great. What’s the physical occupancy? The actual bodies inside the building on a Monday or a Friday when people are not in the office? And the answer is, “Not a lot.”
And so, whether we like to admit it or not, work from home has definitely impacted the office sector, from near and far. Like, it’s not going away at all. All these Wall Street companies can encourage, and tech companies can encourage employees to come back. They’re not coming back. Work from home is going to be here to stay in some form or fashion. And so, I think that’s leaning on the office sector as a whole. But in the same breath, you know, just a random question. What’s more attractive right now? Would you rather own New York City office, or suburban office in Denver, Colorado? I don’t know what the right answer is. Because if you got 10 of your family office guys around the table here to answer that question, I guarantee you would get 10 answers, 10 different answers. I don’t wanna own either of them. I’d rather own suburban Dallas office if I had that opportunity.
Andy: And the family office guys would all say, “We want multifamily,” I think.
David: But did you catch my drift? Like, there is no one-size-fits-all answer that’s out there. And so, you know, it’s this urban versus suburban shift that we’ve seen. It’s this migration pattern trend that we’ve seen, of moving from New York to Austin, let’s say, and eventually they’re gonna go back to New York, eventually. The numbers will come back up eventually. I was chatting with somebody earlier, and I’m like, look, if I’m one of these New York office guys, and I’m sitting on a blank floor of, let’s say, 25,000 square feet, and I’m waiting for a tenant to come in and fill 25,000 square feet, I’d rather suck up some pain and put in four walls, to then have five spaces of 5,000 square feet apiece, and now I can bring in a tenant who may have never had that chance to come stay, you know, come work in Midtown Manhattan, let’s say.
So, I think you’re noticing some of these office and industrial guys getting a little bit more creative on figuring out ways to get tenants that had originally been shut out, to make it more attractive to them. And so, one guy asked me earlier, “Well, what do you do if you’re a New York office player? How do you get people back to the office?” And I said, “Very simple. Cut your asking rate. Cut your numbers. Instead of quoting $25 a square foot, quote $15 a square foot.” But then on the back side, you know, two, three years down the road, when things have improved, that $15 number now goes to $30 or whatever it is. And so, now you’re basically incentivizing your own revitalization. And you came along with us for a couple years that you supported us. Well, guess what? Now we need you to help us out.
Andy: A teaser rate. So, yeah. And, I mean, you know, prices need to clear, right? So, at some point, there’s a price that makes it more attractive… You know, obviously, your ETF is in residential. Do you have… I know you said if you get 10 family offices and ask them about office, you’ll get 10 different opinions. What’s your opinion on office? Do you think, has it adjusted enough that now might be an attractive buying opportunity, or do you think there’s just more years of pain ahead?
David: I think it’s a little bit of both, to be quite honest. Because there are some really desirable office properties that are out there, that, you know, people would kill to have the opportunity to go and work in. And in the same breath, there’s suburban office that’s just as desirable down the street. And there’s people that are, like, “Screw that. I never wanna go… Who wants to go deal with traffic and any of this other stuff again? I’m happy doing it from home.”
And so, I think that some of it’s been a little bit overdone. Some of it’s not quite there yet. We’re still, need to see how it plays out. And then I think we’re in kind of in the sweet spot. Like, suburban office is an example. There’s not many publicly-traded players that focus on suburban office. But, like, you know, you talk about that something’s trading at premium to discount. Like, look at how the Sun Belt guys have been doing versus coastal. And yeah, you’re seeing the New York stuff come back fractionally. But at the end of the day, you know, there’s gonna be this negative New York bias for the longest time. But as I mentioned before, if I came to you on September 14th, 2001 with space available in Lower Manhattan, you would have laughed at me. And the same investor that took that bet came out smelling like roses 5, 10 years later, when things did rebound back to normal. And I think we’re gonna be in that exact same situation here. New York, Chicago, these markets, you know, go through these wavy cycles, that what goes down must eventually come back up.
Andy: Yeah, you know, work from home is a trend. And I do think there was a bit of a structural shift, but the shift wasn’t that offices don’t exist anymore. And I think another factor in office is the labor market, because the labor market was so tight for the past couple years. And so, you know, you’re trying to attract talent. “Sure, you know, we’ll pay you this or that.” “Okay, but I have to work from home four days a week or five days a week.” “Sure. We’ll do whatever we need to. We just, we need to make hires.” Now, I think it’s shifting a little bit, where, you know, you might be a CEO, and you might say, “Well, you know, we need to reduce the workforce by 5%. Well, guess what. Everybody’s coming into the office tomorrow, or you lose your job. We just lost 5% of our workforce. Problem solved.” So, I think that can turn on a dime, too. And I think that’ll affect the office space a little bit.
David: You know, it’s a fun thing is that it’s like Wall Street. Every single day, there’s a new headline, there’s something new to, fun to watch, and a new story to follow. And so, you know, this office story is gonna play out over the next couple of years, and it’s gonna get beat up, and people are gonna make a lot of money on this. Again, those that are willing to take some risks, that have a high risk profile, you know, they’ll take a year or two of pain, and then come back out and be like, “That was the smartest decision I ever made was buying that office stock.”
Andy: Totally. Well, let’s turn now to our perennial favorite on the show, in the world of family offices, multifamily. Right? I mean, David, I love all of my children, but I love multifamily the most, right? But seriously, it’s just, so much money and attention went into multifamily two years ago, even, like, you know, very early parts of last year. And it’s hard for me to even look at the sector and say, well, the pricing got out of hand. But then there was still this underlying structural supply-demand mismatch, where we’re dramatically undersupplied with housing in the United States. So, you know, number one, how has multifamily performed? Number two, where do you think it goes from here?
David: I mean, I’m biased, so I’m gonna say it’s gonna go up. If you couldn’t guess that answer ahead of time. You know, the performance has not been that great for the apartments. Again, we think that residential is the only sector to really be in right now, across all the sectors that are out there, because residential, tried and true, we all need a roof over our head. But at the end of the day, you know, again, location, location, location. There’s a reason why Sun Belt multifamily continues to do as well as it does, why the rent numbers are being pushed the way that it is. I think that, you know, you talk about the job market that’s out there, and employment levels are very strong. We’re talking about a three handle on our unemployment levels.
So, you know, properties are occupied. What’s cool for me, looking at the multifamily space, again, we’re focused on 25 publicly-traded guys in HAUS. And so, for us, the rent is getting paid every single month. Average multifamily occupancy for the public guys is, like, I think 94%, 95% across the board, give or take, you know, a half a percent here and there. But that means that there’s only literally a handful of units that come up for rent every single month. We’re not talking about a property that’s 80%, 90% vacant. We’re talking about a property that’s 95% occupied.
And so you know, Barry Sternlicht, I’m sure everybody knows who Barry Sternlicht is… Barry was on CNBC this morning talking about the state of the affairs, and he was like, “Guys, the apartments are full. The single-family rental units are full. The rental landlords are doing great out there.” And I said to my, you know, I was watching when my wife was in the other room. I’m like, “Thank you, Barry.” Like, you know, love him or hate him, Barry is talking my book for me because it’s true. The REIT guys are full. The numbers are going up through the properties that they do have available for rent. The dividend is going up. But yet, because investors see, “Oh, interest rate sensitivity. Oh my gosh,” the renter doesn’t care where interest rates are. If the renter is going to buy a house, yes, they care where interest rates are. But the typical renter, that just signed a lease for the rent for the next coming year, doesn’t care where the federal…
Andy: Yeah, and David, if they’re not buying a house, they’re gonna be renting, right? So, there, either way, you need the roof over your head, and I think I share your long-term bullishness until that supply/demand, just that underlying, fundamental, macro big-picture aspect of an undersupply of housing, until that’s resolved, this is a long-term bull sector, right?
David: Until the housing prices are basically cut in half, and until interest rate levels are truly cut in half or more, that affordability angle is still out the window. We’re still talking about a long runway of unaffordability.
Andy: Totally. Totally. Well, I think that’s a good place to leave it, and David’s ETF, or Armada ETF Advisors’ ETF, is HAUS, H-A-U-S. A very unique ETF, the residential REIT income ETF. I encourage everybody to look up that ETF. It’s honestly a very efficient way to own multifamily. There’s lots of good ways to own multifamily, but I think HAUS is unique, and it’s also easy. I know at a recent webinar that David was doing with WealthChannel, my brother texted me. He’s like, “Oh, I just bought some shares of HAUS.” I’m like, “Yeah, atta boy.” Because the point is, he’s watching the webinar, it’s just easy, David. It’s just like, “Get out my phone. Boom. Now I own some apartment buildings,” you know? So, it’s really, I think, a unique way to invest in multifamily. And again, we’ll link that in our show notes. And David, can’t thank you enough for joining the show today, sharing all your insights.
David: Andy, keep up the great work. This is awesome and I can’t thank you enough, and can’t wait to do it again.
Andy: Great. Take care.
David: Thanks, buddy.