Andrew Moffs' Top Picks: Tricon Residential, BSR REIT, Irish Residential
The global markets continue to be fraught with uncertainty as a second wave of the pandemic threatens economic activity, the CERB is being replaced by a combination of EI and the newly proposed (yet to be approved) Canada Recovery Benefit and the U.S. election approaches. North American real estate valuations continue to diverge as the pandemic has affected the demand and supply characteristics of the individual real estate asset classes differently.
The U.S. Federal Reserve recently indicated it will hold interest rates near zero until at least 2023. As part of the Central Bank’s new long-term policy framework it will allow inflation to overshoot its 2 per cent target after periods of underperformance. The spread between real estate and bond yields continues to be attractive, allowing cash-flow resilient property types to realize cap rate compression on the strength of cheaper borrowing costs and favourable underlying fundamentals.
Transaction volumes in the private markets have increased to healthier levels, informing valuations for their publicly-traded counterparts. Many public real estate securities continue to trade at a discount to net asset value. Sectors in favour may benefit from increased M&A as this valuation gap is recognized and narrowed by larger private entities, or alternatively re-price due to increased demand.
Capital raising earmarked for real estate from leading private asset managers, large pension funds and institutions has continued unabated and should put a floor under values.
Vision continues to see opportunity within this historic dispersion, maintaining a constructive outlook on single-family residential, U.S. Sunbelt and European multi-family apartments, U.S. manufactured housing communities, U.S. homebuilders and industrial real estate globally.