REITs invest in real estate but some may not realize the wide variety of assets that are in the real estate market. Most people imagine housing, office space, and retail space when thinking of “real estate.”
But, the world of real estate is much wider than housing and retail space. Virtually any enterprise that requires the use of land and/or buildings (which, needless to say, is a fairly expansive category) is a potential opportunity for real estate investors.
Today, we’re covering some successful, unorthodox approaches to real estate investing, by way of a few of the most popular, interesting, and unusual REITs on the market.
Logistics and Shipping
With the benefit of hindsight, it’s no surprise that the COVID-19 pandemic accelerated a trend that was years in the making: online shopping. By some estimates, online shopping increased by more than 32% in 2020, and logistics and shipping companies rapidly expanded to accommodate the increased volume.
So, it makes sense that logistics REITs expanded too.
Prologis is a REIT that invests in warehouses near large urban centers. PLD’s price dropped in March 2020 as political and economic uncertainties threatened to create supply-chain problems, but rocketed back up throughout the rest of the year.
As of November 2021, it’s worth about 50% more than prior to the pandemic, as elevated demand for logistics solutions has continued to expand the sector.
Data Storage and Internet Services
Another set of 21st-century problems: data storage, internet service, and compute resources.
REITs investing in these areas have gained significant traction. Companies that use cloud-based services and financial developments like cryptocurrency require computer power.
Iron Mountain is a REIT that provides storage for physical and digital documents and data via warehousing, to the tune of nearly 700 million cubic feet in 2018, with a 2% turnover rate (meaning most data that enters their custody ends up staying there for a while).
Equinix is a REIT that invests in more than 200 internet connection and data centers on five continents that serve about half of the Fortune 500.
Between 2019 and time-of-writing (November 2021), its share price nearly doubled.
As cloud-computing and virtual meetings become more popular, the outlook is pretty sunny for real estate investment funds in this category.
Smartphones and 5G are still growing rapidly, particularly in developing countries.
American Tower Company is a REIT that invests in cell towers and related telecommunications, like broadcast. In 2018, it owned more than 170,000 sites, many in the United States, but with expanding operations in South America and central Africa.
As of November 2021, it’s up nearly 30% YTD, driven in part by the promise of lucrative investments in 5G infrastructure. Peers like Crown Castle and SBA Communications could also be positioned to win big if telecommunications continues to expand.
If real old-school is more your speed, REITs investing in natural resources are still competitive.
Timber REITs like Weyerhaeuser invest in timberlands and wood products. The housing market sometimes impacts these types of REITs.Although exposure to interest rate for their own investments and its effects on real estate development can be tricky to navigate, investment in timber can produce impressive returns during expansionary periods.
Weyerhaeuser’s up more than 14% YTD (as of November 2021).
REITs at the intersection of healthcare and real estate could also be strong investments.
Medical Properties Trust is a REIT that owns healthcare facilities like hospitals. If demand for physical space for administering healthcare continues to increase (and government initiatives help foot the bill), MPW and other healthcare REITs could be strong options for value investors who prefer to avoid the accentuated risk of emerging investments.
What We Think
For non-accredited investors looking to diversify their portfolio with emerging trends without inviting excessive risk, the increasing availability of REITs that depend on both traditional real estate investment considerations and other arenas is an exciting development.
Timber REITs offer investors the chance to double down on the real estate market. Internet and telecommunications REITs expose investors to the rapidly-expanding cloud computing and data storage industries. Healthcare and logistics REITs combine traditionally secure non-real estate sectors with the benefits of real estate.
These REITs have a few advantages over direct investment in consumer-paid goods and services.
1. Their assets are still predominantly land, and therefore durably, intrinsically valuable in a way some other assets aren’t.
2. Their customers are usually businesses, not consumers.
3. In the event of a market shift, their assets are marketable to a variety of lessors; financial difficulty experienced by any particular lessor is unlikely to be a catastrophic event for a sufficiently large REIT of this kind.
In combination with public REITs’ signature geographic diversification and scale, those factors could help dampen market risks.
At the end of the day, we’re residential real estate investors. We think, for their combination of attractive returns, favorable risk profile, and enduring value, housing investments can’t be beat.
But, the benefits of real estate investing do extend beyond housing, and a well-diversified portfolio is important.