A corporation’s investment income is generally taxable at between about 47% and about 55%, depending on the corporation’s province of residence. This includes interest, foreign dividends and rental income.
Canadian dividend income earned by a corporation is generally subject to about 38% tax, although dividends paid between two related corporations may be tax-free (i.e. paying dividends from an operating company to a holding company).
For a corporation, capital gains are 50% tax-free—just as they are for individuals—such that corporate tax on capital gains ranges from about 23% to about 27%.
Rental income
Rental income is fully taxable personally and corporately at regular tax rates. So, this means 31% for an Ontario resident with $100,000 of income, for example, and between 47% and 55% corporately depending on the corporation’s province or territory of residence.
The caveat is that only net rental income is taxable. A rental property investor can deduct eligible rental expenses including, but not limited to, mortgage interest, property tax, insurance, utilities, condo fees, professional fees, repairs and related costs.
Income in an RRSP
Registered retirement savings plan (RRSP) accounts are tax-deferred with tax payable on withdrawals. However, there are tax implications to owning investments in your RRSP and other registered retirement accounts.
Foreign dividends are generally subject to withholding tax before being paid into your account or an RRSP investment at rates ranging from 15% to 30% (in the case of a mutual fund or ETF). In a taxable account, this withholding tax does not matter as much because you generally claim a foreign tax credit to avoid double taxation. In an RRSP, the foreign withholding tax is a direct reduction in your investment return with no way to recover the tax. This does not mean you should avoid foreign investments in your RRSP. It is simply a cost of diversifying your retirement accounts.
One exception is U.S. dividends. If you buy U.S. stocks or U.S.-listed ETFs that owned U.S, stocks, there is no withholding tax on dividends paid in your RRSP. If you own an ETF that owns U.S. stocks that trades on a Canadian stock exchange, or you own a Canadian mutual fund that owns U.S. stocks, there will be 15% withholding tax on the dividends of the underlying stocks before they are paid into the fund.
Investor and personal finance author Ric Edelman believes it’s a practical strategy to take chips off the table right now.
“It comes down to behavioral finance. It comes down to human emotion,” the Edelman Financial Engines founder told CNBC’s “ETF Edge” this week. “Do you have the stomach? Does your spouse have the stomach to hang in there if things get ugly like they did in ’01, ’08, 2020? Can you hang in there?”
Edelman added there’s a “laundry list of reasons” to be cynical right now. He includes struggles in the real estate market, high interest rates, government shutdown risks and the Israel-Hamas war.
“It’s easy to be negative and that can cause you to say, ‘Why do I want to put myself in a position of maybe losing another 20% or 30% of my money when I’ve already amassed an awful lot of money and I am already in my ’60s or ’70s and I need the safety and protection and by the way get five percent in my bonds or U.S. Treasury or my bank CD? Why don’t I just park it? Earn 5%. Call it a day,’ he said.
Edelman acknowledges the strategy could be less profitable, but he suggests it’s important to sleep better at night.
“I’m not sure everybody in the investment world is acting logically as opposed to emotionally. You’ve got to know yourself,” said Edelman.
The Capital Group’s Holly Framsted is also seeing investors de-risk, and her firm is trying to cater to them by offering a new batch of exchange-traded funds focused on fixed income.
“We’re seeing increased interest in short-duration fixed income,” said the firm’s head of global product strategy and development.
Framsted speculates the investors are making the move to short-duration funds in response to the volatility of today’s market.
“[The Capital Group Core Bond ETF] was among the original six funds that we launched,” Framsted said. “We’re seeing interest among our client base who tend to be longer-term oriented in nature across the full spectrum. But certainly, a lot of conversations in the short-duration space given the environment that we’re in.”
The firm’s bond ETF is virtually flat since its Sept. 28 launch. The Capital Group managed more than $2.3 trillion as of June 30, according to the firm’s website.
U.S real estate investment trusts today manage $4.5 trillion in real estate worldwide. Many groups on Wall Street offer these tax-friendly funds to retail investors.
KKR’s real estate business is one of the big players in the REIT game. The private equity firm manages multiple REIT funds. The KKR Real Estate Select Trust, which currently manages $1.5 billion in assets, paid a dividend of 5.4% to its investors in July 2023.
But the benefits extend beyond returns.
“When you look at the after tax equivalent of that yield, it is very compelling.” said Billy Butcher, CEO of KKR’s global real estate business. “The depreciation from our properties has covered 100% of the income generated by our properties, and there’s no tax on that dividend,” he said in an interview with CNBC.
Larger funds sometimes contain a diversified pool of assets. Categories may include office, student housing, casino, timberlands, radio and cell towers, server farms, self-storage properties, billboards, and much more.
“Back in the 1960s, there were three or four different types [of REITs], said Sher Hafeez, a managing director at Jones Lang LaSalle, a real estate services firm. “Now, I can count at least 20 different types.”
Top performing REIT sub-sectors in recent years include data centers, self-storage properties, residential housing and tower REITs. Residential housing delivered a return of 16% from 2010 to 2020, according to a S&P Global Investments report.
The investor-friendly tax rules can also increase the pace of large-scale development.
“Having REITs there as a potential exit helps the market, and helps the availability of financing,” said Michael Pestronk, CEO and co-founder of Post Brothers, a Philadelphia-based housing developer.
Some funds like Invitation Homes and American Homes 4 Rent were founded in the yearslong slowdown in U.S. home construction. At the time, REITs bought and managed commercial-scale properties, which could include products like master-planned communities or traditional apartment complexes.
In recent years, publicly traded trusts have targeted single-family rental market, and today, these REITs have grown tremendously — enough to build new neighborhoods in their entirety.
Watch the video above to learn the fundamentals of real estate investment trusts.
Mayors in cities across the U.S. want to loosen rules that can slow the pace of office-to-residential conversions. In some instances, cities have offered generous tax abatements to developers who build new housing.
“We have a great opportunity to change the uses in the downtown,” said Washington, DC, Mayor Muriel Bowser at a December 2022 news conference in support of her housing budget proposals.
“It’s absolutely a budget gimmick” said Erica Williams, executive director at the DC Fiscal Policy Institute, referring to Bowser’s 2023 proposal to increase the downtown developer tax break. “We fully support the idea that some of these buildings could be turned into residential properties or into mixed-use properties, but that we don’t necessarily need to subsidize that.”
In New York City, a task force of planners assembled by Mayor Eric Adams is studying the effects of zoning changes, and possible abatements for developers who include affordable units in conversions.
Cities like Philadelphia have previously embraced these policies to revitalize their downtowns. In Philadelphia, homeowners and investors received more than $1 billion in tax breaks for their renovation projects.
A small collective of developers have taken on this challenging slice of the real estate business. Since 2000, 498 buildings have been converted in the U.S., creating 49,390 new housing units through the final quarter of 2022, according to real estate services firm CBRE.
Prominent investors Societe Generale and KKR have worked with developers like Philadelphia-based Post Brothers to finance institutional-scale office conversions in expensive central business districts.
“Capital has gotten much more limited,” said Michael Pestronk, CEO of Post Brothers. “We’re able to get financing today. … It is a lot more expensive than it was a year ago.”
Many experts believe local governments will alter zoning laws and building codes to make these conversions easier over the years.
“Our rules are in the way, and we need to fix that,” said Dan Garodnick, director of New York City’s Department of City Planning.
Watch the video above to learn how cities are getting developers to convert more offices into apartments.
Some U.S. mayors are loosening up rules that determine how developers convert office buildings into apartment complexes. The conversion trend sped up in the 2020s, as the Covid pandemic remote work boom reshaped cities. Declines in office leasing activity is constraining funding for services like education and transit, leading some local leaders to prioritize conversion of dated buildings. These rule changes may create some additional housing supply in regions like the U.S. East Coast.
A major financial services CEO warns the economy hasn’t fully absorbed higher interest rates yet.
Thomas Michaud, who runs Stifel company KBW, notes there’s a delayed reaction in the marketplace from the last hike — calling a 25 basis point move at 5% a very different situation than off a half percent.
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“This is getting to be the real deal at the moment because of the level of rates,” he told CNBC’s “Fast Money” on Wednesday. “The bite of these higher rates is gaining traction almost every day.”
Michaud delivered the call hours after the Federal Reserve decided to leave interest rates unchanged. It comes after ten rate hikes in a row.
The Fed signaled on Wednesday two more hikes are ahead this year. Michaud expects one to happen in July. However, he questions whether policymakers will raise rates a second time.
“Trying to deliver a new message with these dots is not what I’m willing to hang my hat on from what I see happening in the economy,” he said. “The economy is slowing. So, I think we’re near the end of this rate increase cycle.”
He lists interest rate sensitive areas of the economy already in a recession: Office space in urban areas, residential mortgage originations and investment banking revenues. He sees the problems contributing to more pain in regional banks.
“Banks were already tightening in the fourth quarter of last year. It didn’t just start in March. Loan growth had been slowing,” added Michaud. “There are elements of like the global financial crisis that are in bank stocks right now.”
According to Michaud, the regional bank rally is a short-term bounce. The SPDR S&P Regional Banking ETF is up almost 18% over the past month.
“The overall industry rally for all participants probably doesn’t happen until we get some more stability in what we think the earnings are going to be,” said Michaud. “Earnings estimates haven’t settled. They haven’t stopped going down.”
He sees a shift from adjusting to the new interest rate environment to credit quality in the second half of this year.
“Before the first quarter we cut bank estimates by 11%. After the quarter, we cut them by 4%.” Michaud said. “My instincts are we are going to cut them again.”
A major activist investor is betting stalled return-to-office plans will stir up more trouble in commercial real estate.
Land and Buildings’ Jonathan Litt has been shorting REITs with high office space exposure for three years, and he has no plans to shift gears.
“If you have no rent growth and your vacancies are going up and you have giant operating expenses to run an office building, you’re going backwards fast,” the firm’s chief investment officer told CNBC’s “Fast Money” on Tuesday.
Litt first warned Wall Street an “existential hurricane” was about to hit the sector in May 2020. Now, he’s saying the “hurricane has landed.”
He’s doubling down on the call — citing spiking interest rates and high inflation. Litt calls them two factors he didn’t anticipate when he first started shorting these companies in May 2020.
DC-based JBG Smith Properties is one of Litt’s major shorts. It’s down 58% since the World Health Organization declared Covid-19 as a pandemic on March 11, 2020. So far this year, JBG Smith is off 20%.
“Washington, DC is one of the toughest markets in the country today,” noted Litt. “They have a substantial office portfolio.”
He adds the crackdown on lending is compounding the problems.
“This isn’t a work from home story anymore. This is a financing story. It’s kind of like them mall business went from the mall problem to the financing problem,” Litt said. “Now, it’s a financing problem. And as these debts come due, there’s really nowhere to go because lenders aren’t lending to the space.”
JBG Smith did not immediately respond to a request for comment.
Scores of luxury homes are coming to major cities across the United States.
Analysts at Yardi Matrix projected that more than 400,000 units were completed in 2022, and they expect another strong showing in 2023. Experts believe much of this new stock is built with upper-tier customers in mind.
“You often see new housing branded as ‘luxury,’ in part because it’s new,” said Ethan Handelman, deputy assistant secretary at the U.S. Department of Housing and Urban Development. “When you get to affordable housing, we need to be providing some additional capital and/or rental assistance to help make that housing affordable to the people who need it most.”
Market-rate rents for new apartments can easily be multiple thousands of dollars monthly. For many high-wage earners in cities, this is achievable. But for moderate-income Americans, the sky-high prices appear disconnected from reality.
“The marketplace is structured not to house certain people. We need to admit that,” said Dominic Moulden, a resource organizer at Organizing Neighborhood Equity DC.
Builders say the high cost of housing in the U.S. is related to the large amount of regulation in the housing sector. For example, they say, many U.S. cities are short on land due to restrictive zoning codes.
“Currently, 40% of the cost of multifamily development is in regulation,” said Sharon Wilson Géno, president at the National Multifamily Housing Council. “We have to do something about that if we’re going to build more housing.”
In 2022, the Biden administration announced a housing action plan that aims to shore up housing supply within five years. But these efforts may not have a material impact on prices for some time.
“Unfortunately, I don’t think we’re going to see rents going down a whole lot over the next one to two years,” said Al Otero, a portfolio manager at Armada ETF Advisors. “Developers cannot make a profit at those more affordable price points. Therefore, we see the development and the new construction at the much higher, higher end of the spectrum.”
Watch the video above to see why the United States is awash in new luxury apartments.
John Kim, real estate analyst at BMO Capital Markets, joins ‘The Exchange’ to discuss the state of the REIT market as well as companies rethinking office investments.
If you plan on raising your cash investment income in 2023, a position in REITs (real estate investment trusts) may help you do it.
REITs are dividend-paying entities that own or finance real estate. They can make their money through rents, property sales, interest income or all of the above.
REITs have a special tax status that requires them to pay out at least 90% of their taxable income to shareholders. For the REITs that are profitable, that requirement can lead to a higher-yielding investment than, say, blue-chip stocks or investment-grade debt.
As a reminder, dividend yield is the cumulative annual dividend payment dividend by the share price. So, a REIT that pays dividends of $10 per year and trades for $100, yields 10%.
Intrigued? Read on for a crash course in REIT investing. You’ll learn about the trade-off between yield and reliability, common risks among highest yielding REITs, the best REIT investments and how to pick reliable REITs for your own portfolio.
Yield Vs. Reliability
As an investor, you routinely make trade-offs between risk and reward. If you want stability, you invest in slow-growing, mature companies. If you want fast growth, you must accept the potential for higher volatility.
With REITs, the relationship between yield and reliability works the same way. REITs that produce very high yields can be less reliable. REITs that produce income like clockwork pay more moderate yields.
The good news is, you get to pick your sweet spot on that yield-reliability spectrum. There are enough REITs out there so you can tailor your portfolio to your comfort zone.
You’ll learn more about picking the best REITs below, but you can choose from two general approaches. You might define a narrow range of screening criteria for every REIT you buy. Or, you could cast a wider net and find your balance in the aggregate. You might invest in a couple aggressive REITs and hold them alongside more conservative positions, for example.
For context, in 2022, the dividend yield on the benchmark FTSE Nareit All REIT Index ranged from 3.1% to 4.3%.
If you’re targeting higher-than-average yields without excessive risk, you can find good options yielding 4% to 8%. You’ll see some of these below. Yields above 10% are achievable, but they’re likely to involve more volatility in share price and dividend amount.
Invesco Mortgage Capital: A High-Yield REIT Example
A case in point is mortgage REIT Invesco Mortgage Capital (IVR). IVR’s dividend yield is among the highest out there, about 20%. But the REIT has struggled in 2022 under the pressures of rising interest rates, falling property values and cautious financial markets.
In the second and third quarters of 2022, IVR recorded net losses per common share of $3.52 and $2.78, respectively. The company also cut its third quarter dividend from $0.90 per share to $0.65.
Notably, IVR completed a 10-for-1 reverse stock split earlier this year. Reverse stock splits don’t change a company’s capitalization–they only reallocate the market value into a smaller number of shares. Because each share represents a larger slice of the company after the split, the stock price rises. The increase usually corresponds to the split ratio.
Pre-split, IVR was trading for less than $2 per share. Post-split, the share price rose more than 900% to about $17.50. Now, six months later, IVR has slipped below $13.
So, yes, IVR has an impressive yield. But it comes with the risk of ongoing share price declines and additional dividend cuts. For many investors that trade-off isn’t worth it, particularly when the economic outlook remains uncertain.
What To Watch For
Some investors will take the opposite perspective on IVR and other mortgage REITs–that the underlying issues are temporary. In that case, these downtrodden REITs may have lots of long-term upside.
If that’s where your mind is going, plan on thorough analysis before you buy. Pay special attention to the nature of the share price declines, the viability of the business model and the REIT’s debt level.
1. Duration and range of share price declines.
Share price declines mathematically push dividend yield higher. So, your highest-yield REIT options often show a downward price trend.
Dive into that trend. How long has the share price been declining, what does leadership have to say about it and what are the root causes? If the underlying issues are external, is the REIT managing better or worse than its peers?
2. Obsolete or overly complex business models.
REITs can run into trouble when they’re too concentrated in the wrong types of tenants or properties. Specializing in indoor malls, where foot traffic has been declining for years, is an example.
Another yellow flag is a complex business model. Complexity adds risk. Mortgage REITs, for example, buy and sell mortgages and mortgage-backed securities so they are more sensitive to interest rate changes than equity REITs. Depending on the type of mortgages they finance, default risk may also be a factor.
3. Too much debt.
REITs pay out 90% of their taxable income to their shareholders. That doesn’t leave much funding for business expansion.
They commonly use debt to solve that problem. New borrowings can fund property acquisitions, which increases profits, cash flow and dividends.
It’s not unusual for REITs to be highly leveraged. But debt can become unmanageable very quickly—particularly under changing economic conditions. A REIT shouldn’t be so leveraged that it can’t absorb temporary periods of lower occupancy, higher interest rates or lower property values.
Best REIT Investments
For most investors, the best REITs to own have sustainable business models, reliable cash flows and manageable debt. These won’t deliver eye-popping, double-digit yields—but they do earn higher marks for consistency and reliability. See the table below for ten examples.
Looking at the list above, you might conclude that REIT yields seem higher than traditional stock yields. You’d be correct, in a sense. But the practical difference between REITs and dividend stock yields will be less than you’d think.
Most REIT dividends are taxed as ordinary income. Dividends from U.S. companies and eligible foreign companies are usually taxed at the lower capital gains rates. So while you can earn higher yields with REITs, taxes will consume some of the difference. You can avoid that problem temporarily by holding REITs in tax-advantaged accounts such as traditional IRA, Roth IRA, 401 (k) and more.
For context, the highest income tax rate is 37%, while the highest long-term capital gains rate is 20%.
How To Pick The Best REIT Stocks
You’re smart to develop your own process for picking REITs that suit your goals and risk tolerance. Many REIT investors screen their options by REIT type, business model, dividend track record, revenue and cash flow production, and leverage. Below are some pointers on each of these that will help you set your own parameters.
If you’re up for a fun exercise, try applying these guidelines to the ten REITs introduced in the table above.
1. Understand your options
REITs come in many varieties. The primary REIT types are:
Equity REITs, which own property
Mortgage REITs, which finance property
Hybrid REITs, which own and finance property
Equity, mortgage and hybrid REITs can be further categorized by the property types they specialize in, such as:
Retail storefronts and shopping centers
Industrial properties, including warehouses and manufacturing facilities
Residential, such as apartment buildings
Healthcare facilities and hospitals
Self-storage properties
Timberland
Farmland
Infrastructure, such as cell towers and data centers
In investing, the simplest option is often the best choice, especially for novices. You might start with an equity REIT specializing in residential or retail space, for example. That’s likely to be more relatable to you than a mortgage REIT or an infrastructure REIT.
2. Get comfortable with the business model
You should understand how the REIT makes money today and how revenue growth will continue going forward. Review the REIT’s tenant profile, average lease length and occupancy trends. Also read through annual reports and other documentation to understand the REIT’s growth and acquisition strategy.
3. Review the dividend history
The best REITs have a solid history of dividend payments and dividend increases. Dividend increases obviously benefit your net worth and improve the efficiency of your portfolio. More than that, dividend increases show the REIT isn’t stagnant. Long term, sustainable dividend growth requires business growth to support it.
4. Check revenue and cash flow trends
If you see a track record of dividend growth, you should also see rising revenue and cash flow. Analyze those trends. How much has the revenue grown, and for how long? How does the growth compare to the REIT’s closest competitors? Is long-term debt rising at the same rate?
For cash flow, a popular metric to watch is FFO or funds from operations. FFO is earnings from business activities plus the noncash expenses of depreciation and amortization.
FFO does not include interest income or gains or losses from property sales, so it’s a good measure of operating performance. This is why REITs and their analysts often refer to FFO per share instead of the more general metric, earnings per share.
You can find a REIT’s FFO, current and historic, on its public financial statements.
5. Analyze the balance sheet
Debt can be a risk for REITs, so a balance sheet review is necessary. To compare a REIT’s leverage to its peers, focus on the debt-to-equity ratio and the debt ratio.
Debt-to-equity ratio: This ratio tells you how much debt the REIT uses relative to equity in funding the business. You calculate debt-to-equity as total liabilities divided by total equity. A 3:1 ratio means the business is financed with 75% debt and 25% equity. REITs can support high debt-to-equity ratios in the range of 2.5:1 to 3.5:1.
Debt ratio: The debt ratio measures solvency by dividing total assets into total liabilities. High debt ratios, above 60%, can limit the REIT’s ability to borrow money in the future. Nareit reports that the debt ratio across publicly traded equity REITs was 34.5%.
REITs For Income In 2023
If you’re ready to invest in REITs for income in 2023, start by defining your sweet spot on the yield-reliability spectrum. Err on the conservative side if you’re not sure. Choose REITs with simple, understandable business models that have a long track record of paying and increasing their dividend.
As is best practice with any investment, don’t go all in. Hold your high-yield REITs alongside traditional stocks and fixed-income positions. That’s how you achieve a good, sustainable balance of growth potential and stability—which is the key to building wealth in the stock market.
BX was down another 4% this week as BREIT draws SEC interest. With CNBC's Melissa Lee and the Fast Money traders, Tim Seymour, Dan Nathan, Guy Adami and Bonawyn Eison.
Real estate investment trusts are having a bad year. Yet if you sift through the sector, you could find an opportunity to make a lot of money, according to Jenny Harrington, CEO of Gilman Hill Asset Management. The MSCI US REIT Index is down nearly 21% in 2022, according to FactSet. The index has 132 constituents, representing about 99% of the U.S. REIT universe. In comparison, the S & P 500 has lost about 11% so far this year. Blackstone recently had to limit withdrawals from its retail real estate fund , BREIT, for November and December. The investment vehicle received repurchase requests that exceeded the 2% net asset value monthly limit and the 5% quarterly limit. Overall, rising interest rates are largely to blame for the slump in the sector, since investors who have REITs for their high dividend yields may sell the assets in favor of risk-free Treasurys. The Treasury yields have been climbing this year, with the 2-year note currently yielding more than 4%. “The underlying businesses are in excellent shape in many cases,” Harrington said on CNBC’s ” Halftime Report ” Friday. “I don’t think that you are doing yourself a service to make the broad-based statement, ‘commercial real estate is bad.’” She owns several names, including Iron Mountain , which supports information storage and retrieval to businesses. It currently has a 4.5% yield and is up more than 5% year to date. National Retail Properties , Postal Realty Trust , Sabra Health Care and SL Green Realty are also on her list. “In an economy that is strong, which we are still in … they produce real earnings and they are able to increase their rents,” Harrington said. “Most of them still have really decent earnings growth ahead.” Jim Lebenthal, chief equity strategist at Cerity Partners, also isn’t bailing on REITs. “Interest rates appear to have peaked. The time to get out of REITs, I would say, is when interest rates are going up,” he said on “Halftime Report.” Lebenthal owns Camden Property Trust , which owns, manages and develops multifamily apartment communities in the Sun Belt area. People are moving to the area in the southern part of the U.S. as they leave higher-taxed coastal states, he said. The key to investing is to sort through the sector and choose wisely, Harrington added. “You need to pick through and not use the broad brush on this,” she said. “There is enormous opportunity and I think that because they are down so much, this is a place where you can actually make a lot of money going into 2023.”
Jason Snipe, Steve Weiss, Jenny Harrington and Jim Lebenthal join the ‘Halftime Report’ to discuss investment in real estate, the commercial real estate sectors impact on REIT sector and where opportunity lies.
Barclays sees a challenging near-term ahead for Blackstone after the investment firm on Thursday limited withdrawals from its large retail real estate fund. The bank downgraded shares of Blackstone to equal weight from overweight and cut its price target to $90 from $98. That implies upside of nearly 6% for the stock. “While we are positive on the longer-term retail opportunity for alternative assets (and BX generally) we think near-term sentiment for both retail and BX shares will be very challenging,” wrote Benjamin Budish in a note. BREIT withdrawal debacle Blackstone had to limit withdrawals from its $69 million retail real estate fund, or BREIT, for November and December after the investment vehicle received repurchase requests that exceeded both the 2% NAV monthly limit and the 5% quarterly limit. That sent shares of the firm down more than 7% on Thursday. “In November, BREIT repurchased ~$1.3B of shares, representing ~43% of of redemption requests in the month, indicating just over $3B of total redemption requests in November, nearly doubling month over month,” said Budish. “Additionally, our analysis of the fund’s most recent 10-Q and Prospectus filing indicates new November subscriptions slowed to ~$484M, down from $880M in September and well over $1B prior.” Most of the redemptions were from Asia-based investors, who withdrew at a rate eight times that of U.S. investors. While offshore investors represent about 20% of the fund, they make up roughly 70% of withdrawals this year. “That said, now that redemptions have been capped, we worry that negative headlines around the product, and limited liquidity through the end of the year and perhaps longer, could both drive further run[1]on-the-bank type redemption requests, as well as pressure new inflows, as advisors will be less likely to recommend a product that is (for the moment) limiting liquidity,” said Budish. Macro forces at play At the same time, Barclays worries that the rising interest rate environment and moderated performance of BREIT will further weigh on demand for new subscriptions to the fund. While past performance of the fund has been solid – it was up nearly 29% in 2021- the current expected return is more muted and includes a roughly 4.4% annualized monthly distribution. “Given the rapid rise in rates, we expect the relative attractiveness of BREIT (vs. short-term treasuries at 4%+) will recede going forward,” said Budish. Despite the near-term pressures on the fund, Barclays is still optimistic on the longer-term retail opportunity for alternative assets and sees Blackstone as a well-positioned beneficiary. “While the issues related to BREIT largely originated with macro factors, we believe Blackstone has done an otherwise remarkable job building out a sales force and educating advisors, and as the macro environment becomes more supportive, we think net retail flows here are likely to return to growth,” said Budish. “That said, it remains to be seen to what extent the capping of redemptions becomes a reputational issue for the company.” — CNBC’s Michael Bloom contributed to this report.
George Hongchoy of Link Asset Management believes that a wide price gap between optimistic sellers and cautious buyers are reducing deals in real estate markets, and someone has to move on pricing.
