When it comes to real estate, the traditional avenues for approaching this asset class with clients are rental properties or individual equities and funds.
Both choices check the income-generating box, but many clients either lack the capital or desire to be landlords. That leaves single stocks or funds as the primary vehicles for getting into the real estate game. Broadly speaking, those are decent options. After all, the real estate sector is, historically, inversely correlated to interest rates, lobs off above-average levels of income and offers lower correlation to other equity sectors.
However, there are drawbacks to many of the index-based real estate strategies many advisors and clients favor. Chief among those drawbacks is lack of evolution. These days, some of the most exciting opportunities with real estate investment trusts (REITs) are found among technology (data centers and cell towers) and industrial REITs.
However, many traditional REIT benchmarks aren't adequately exposed to those segments. Take the case of the widely followed MSCI US Investable Market Real Estate 25/50 Index. That index devotes just 10.40% of its weight to industrial REITs. Conversely, it's heavily allocated to many of the REIT segments – think hotel, mall and office REITs – that were punished by the coronavirus pandemic.
Advisors can up clients' industrial REIT exposure via the Sealy & Company platform.
“Over the past seven decades, Sealy & Company developed a proprietary network of key local market participants in the Southeastern and Southwestern US real estate markets,” according to the company. “This network, along with our local market professionals, creates a compelling competitive advantage for sourcing, evaluating, and managing investment opportunities throughout our markets.”
Why Industrial Real Estate Matters
Industrial REITs can serve a variety of functions, but the investment thesis for this asset class is in large part supported by the e-commerce boom.
As online retail takes increasingly more market share from brick-and-mortar, companies such as Amazon, Target and Walmart and more have substantial real estate needs.
“E-commerce requires roughly three times as much warehouse space as store-based retail. Sellers and manufacturers are also eager to build inventories, following supply disruptions from the pandemic and a trade war with China. That means warehouse demand is likely to outstrip new supply in the years ahead, pushing rents well higher,” reports Jack Hough for Barron’s.
Making the Sealey platform all the more relevant for advisors is that, as the pandemic proves, there's a certain level of durability embedded in industrial REITs not found with, say, hotel or office REITs.
“For Investors looking to add exposure to real estate, Industrial REIT’s are a strong candidate. Warehouses and Distribution Facilities have become crucial logistical assets in the new economy, and owners of these properties have enjoyed steady gains and durable income in recent years. It’s easy to see this trend continuing as the economy emerges from the pandemic, and Sealy has great managers and a proven track record to capitalize on it.” said Douglas Blake, managing director – investment services at Kingswood U.S.
Right Mix, Right Time
Just like the real estate universe, the advisory business is evolving. Long gone are the days when advisors could adequately fulfill clients' needs and wants with basics such as bonds, stocks and funds.
Today's clients are increasingly savvy and demand exposure to more compelling offerings, be it access to pre-IPO companies or industrial REITs. Backed by an industry-leading, Sealey meets that demand and does so with an impressive track record.
“They've had really great returns over a long period of time,” adds Blake.
That run can continue because industrial REITs are part of real estate's future, not the past so many prosaic real estate instruments emphasize.
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