• Sun. Aug 7th, 2022

Finding primary security, capital appreciation with real estate investments


Commercial real estate, given a boom in demand over several years, can provide investors with diversity and income.

Unpacking commercial real estate as an investment, Zuber Lawler’s Tom Zuber led a Benzinga Reopening Stocks Summit conversation between Ian Selig of Safehold Inc (NYSE: SAFE) and David Auerbach of the Global Equities Group.

REIT at stake: Partly because of the so-called reflation trade – an expansion of the economy’s output following the recovery and reopening in a pandemic – real estate is booming.

In one example, Auerbach pointed out EPR properties (NYSE: EPR), formerly Entertainment Properties, a real estate investment trust that owns and finances amusement parks, theaters, resorts and other income-generating entertainment properties.

“Not only are theaters reopening, but EPR also happens to be one of the exclusive partners and developers of a small concept called Topgolf which is owned by Callaway,” he said.

“As we come out of COVID, we’ll be focusing on those experience-type events – going to the movies, to the driving range, to the ski resort, to the water park, to the amusement park, to indoor skydiving – that you can’t. not reproduce online. “

Simply put, investors can look to names like EPR, Innovative Industrial Properties Inc (NYSE: IIPR), Power REIT (NYSE: PW), AFC Gamma Inc (NASDAQ: AFCG), Eastern Government Properties Inc (NYSE: DEA) and Simon Real Estate Group Inc. (NYSE: SPG), among others, for exposure to growth opportunities in real estate sectors such as hotels, shopping malls, offices, data centers, cannabis cultivation and crypto mining facilities. cash.

“Raising capital is very popular in the REIT industry,” added Auerbach. “The reason is that REITs are replacing the 10-year Treasury, which is trading at around 1.25%. The average dividend yield for REITs is less than 4%.

“Basically you have about 275 basis points in your pocket to buy real estate.”

Love of the land lease: Land leases are agreements to develop properties for lease periods that typically last 99 years. During the term, rents are collected. Afterwards, landowners like Safehold acquire all the structures built on the land.

Through its approach, Safehold, the only publicly traded company focused on land leases, democratizes real estate ownership, giving landlords a better way to unlock value under their buildings and investors exposure to a multi-year real estate boom. commercial.

Chart: Typical Safehold investments in well-located real estate.

There is no other place in the investment world where two types of investments, land and construction, are required to be together, Selig says.

“In the corporate world, you don’t have to buy corporate bonds to buy shares,” he explained. “This is what happened in real estate, because there has never been a national company with quality ratings to acquire this land component and do it in a way that really improves the value of the building. . ”

In addition, there are three efficiency gains that Safehold offers building owners.

The first two are capital and cost due to the separation of land and structure, which reduces mortgage fees, taxes and brokerage fees. Third, there is a reduction in maturity risks, over the entire part of the capital structure, through the involvement of quasi-permanent capital.

Investors receive “daily passive investment liquidity over 100 years and that’s a powerful trade-off,” Selig said by generating nearly 200 basis points of excess value for long-term, high-quality bonds.

“For the first time, we have made land lease investments available to the individual investor. An investment that offers security of capital, increasing income obtained through contractual cash flows, as well as an opportunity for significant capital appreciation.

Photo by Laura Tancredi of Pexels.


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