At a time when virtually all things real estate have been distressed, there’s one corner of the sector that has been fruitful for investors. Many factors working against the residential housing market have actually helped returns on real estate investment trusts.
REITs — which invest in commercial properties from office buildings to shopping malls, as well as rental apartments — have outperformed the S&P 500 since the financial crisis. Total returns for REITs were 28% in both 2009 and 2010, besting the S&P 500, which returned 23% and 15%, respectively, according to the National Association of Real Estate Investment Trusts, the industry trade organization. Though the gains in REITs are still 20.84% below their February 2007 peak, their performance is impressive.
Indeed, a few factors make REITs especially attractive, even with the fragile economic recovery. For one, prices for REITs don’t necessarily move in tandem with the broader stock market. They tend to rise and fall with the commercial property market. And because a REIT (by law) must distribute at least 90% of its income to shareholders, the investments pay relatively high dividends.
The best performers are tied to the residential rental market, such as Campus Crest Communities (CCG) and Camden Property Trust (CPT). In 2010, investments in apartment complexes led gains in the overall REIT market with total returns at 47%, followed by lodging and resorts at nearly 43%, free-standing stores at about 37% and regional shopping malls at about 36% (see also The American mall: Back from the dead).
The returns from apartment REITs are due in large part to a housing market still in disarray — and they might just continue being a wise investment, given the grave market for buying single-family homes.
Via Fortune: Full Story