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Jonathan Litt, the founder of asset management company Land & Buildings, has always been negative about office real estate, but may be changing his tune. This could be welcome news for investors following his predictions and wondering when things could look better for the REIT sector.
Litt has been shorting REITs with high exposure to office space for several years. In 2020, he said that what he called an “existential hurricane” would come to office real estate in 2020. Last year he told CNBC that the “hurricane has made landfall.”
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Litt recently joined CNBC’s ‘Fast Money’ to talk about the state of commercial real estate. Litt spoke briefly about the housing market and noted that the Federal Reserve’s decision to cut interest rates could change the situation in the real estate market.
Litt noted that homebuilders were trading at very high levels. Sales of new homes have increased by almost 10% annually, while sales of existing homes are more than 4% lower than last year. However, an increase in existing home sales “could be a challenge for homebuilders,” Litt said.
CNBC’s Melissa Lee asked if Litt’s attitude toward homebuilders was a shortcoming, but Litt declined to take the bait, saying only that he was monitoring the situation.
It’s ‘Game On’ for commercial real estate
Litt has seen a palpable shift in the commercial real estate industry. He said private and public companies are getting great financing and accelerating transaction volume. Some real estate agents, such as CBRE (NYSE:CBRE), could be big winners as they benefit from higher transaction rates after several years of a depressed market.
Litt also likes Equinix (NASDAQ:EQIX), one of the top data center REITs. He was recently at the Bank of America conference, where the company said the REIT ETF had twice as much demand as any other ETF in its system.
Like many others watching the market, Litt has noted that banks have been slow to lend in commercial real estate and that this trend is likely to continue. He noted that public companies have an advantage in raising funds.
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Is Office coming back? Not quite yet
Litt was asked about Amazon’s recent decision to end remote work. He said he doesn’t yet see a mass return to work, especially in New York, where hiring is subdued. He said even when people are back in the office, the problem is on the financing side. “You won’t be able to get loans, assets won’t be paid off and there will be a lot more pain in the New York market,” he added.
One of Litt’s shorts is Alexandria Real Estate Equities (NYSE:ARE), which has underperformed other REITs. He said the data has not changed and noted the company has had several downgrades. Data from Benzinga shows that there were five analyst downgrades in late July, after Alexandria Real Estate reported its earnings results. He thinks that the trend and decreasing demand for laboratory space will not reverse quickly.
After his appearance on CNBC, Litt also posted on X, reiterating the message that the game is on for REITs. While it’s clear he likes some REITs more than others, his optimism is another positive sign for real estate.
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This article A real estate activist investor says it’s ‘game on’ for REITs: Which real estate stocks are on his radar? originally appeared on Benzinga.com