Brad Thomas, author of The Intelligent REIT Investor Guide, spent more than 20 years as a real estate investor before becoming a REIT analyst and writer.
As CEO and senior analyst of Wide Moat Research, Thomas researches and writes on a range of real estate-based income alternatives, with a primary focus on publicly traded REITs. He is also an adjunct instructor teaching REITs at the Schack Institute of Real Estate at NYU.
What should small investors who are unfamiliar with REITs be most aware of?
The fact that they’ve been around 60 years is exceptionally helpful. You can go back over many decades and compare publicly traded REITs to not only the private market but also other asset classes. These specialized stocks offer tremendous diversification advantages that aren’t necessarily there for the private market.
People also aren’t always familiar with the fact that REITs provide full liquidity and full transparency. Because they’re regulated by the SEC, there’s a wealth of information available about them. All told, REITs have outperformed not only private real estate but other asset classes over decades, providing a reliable and predictable earnings stream.
Name a key concept you want investors to take away from your new book.
Much like The Intelligent Investor, where author Benjamin Graham was prolific in espousing the margin of safety concept (i.e., buying below a stock’s intrinsic value), my goal is to stress the importance of being a value investor in the REIT sector. Investors should focus on very high-quality REITs trading at or below their margin of safety.
This book is what I consider to be The Intelligent Investor in a REIT wrapper.
What are you most excited about in the REIT space right now?
It’s amazing to see the opportunities for publicly listed REITs to continue to scale upward and outward. U.S. equity REITs represent roughly 10% of all institutionally owned commercial real estate in the U.S., allowing for tremendous room to grow. Considering current commercial real estate conditions, I think we’re going to see continuing consolidation where the more dominant players absorb properties across the U.S. and abroad.
The most exciting thing is to see the REIT universe continue to grow. With its newer property types, this grouping’s magnitude should continue to snowball. And investors will continue to be rewarded with growth in shareholder value.
Describe one of the most important lessons of your investing career.
One of the most valuable lessons I’ve learned, which is also my mantra today, is to protect my principal at all costs. Over the last 30 years, I’ve learned to become much more risk averse and focus on the quality of the underlying asset. I also always stress valuation in buying shares with a quantifiable margin of safety.
The accuracy and frequency of private real estate valuations can be improved and standardized to increase the transparency and accountability of allocation decisions. A helpful part of that analysis would be the recognition of, at the very least, the standard deviation of the realized returns on similar investments.