Doug Weill, founder and co-managing partner of Hodes Weill & Associates, a leading global capital advisory firm, was a guest on the latest episode of Nareit’s REIT Report podcast.
Hodes Weill recently released the 2023 Real Estate Allocations Monitor, which showed that institutions’ target allocations to real estate were flat at about 10.8% year-over-year.
“Institutions are very cautious in the market today. And while they're reasonably optimistic about the opportunity to invest over the next couple of years, right now in the moment there are numerous cross currents,” Weill said.
At the same time, several large institutions have increased their target allocations over the past 12 months, Weill noted. “I think that has been a signal to the market that they are encouraged about the opportunity to invest and perhaps lean into the opportunity.” Such institutions include Norges Bank and CalSTRS.
Institutions expect the next couple of years will be “good vintage years to deploy capital into the market. But right now, they're moving very slowly and are really largely on the sidelines,” Weill said.
This year, for the first time, the Real Estate Allocations Monitor asked investors about their use of REITs. Larger institutions, in particular, noted that there are tactical reasons they invest in REITs. Those include being opportunistic and taking advantage of situations where REITs are trading below intrinsic value.
In addition, REITs offer access to certain strategies, sectors, or geographies that round out portfolios. “Most importantly for institutions, they're increasingly looking at REITs as complementary to what they do on the private side,” Weill said.
Meanwhile, Weill added that many institutions are pulling REITs back into their real estate allocations and away from public equities. “We think that's pretty notable.”
During the interview, Weill also said many REITs are looking to private capital strategies to invest at a time when perhaps they don't have the balance sheet capacity relative to the buying opportunity that they see, or otherwise are looking to round out their sources of capital.
“We increasingly are seeing REITs access capital either in joint ventures or even in funds or separate accounts to complement their access to the public markets. I think you'll continue to see that play out,” Weill said.