Trends Watch: May 3, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks to Jared Morgan, Head of Acquisitions at Four Springs Capital Trust.

What is your outlook for real estate?

We feel certain subsectors of the net-lease market are becoming overheated from a valuation standpoint.  In particular, prices remain elevated for long-term leased medical properties with large health system tenants. However, overall real estate fundamentals should remain healthy due to a responsible debt market and reasonable levels of new construction.  The recent rise in long-term interest rates has placed pressure on required transaction yields and will push more of the non-core capital out of the sector. 

What is your outlook for the economy?

Whether right or wrong, I look at the economy through the lens of commercial real estate and performance of tenants/operators we underwrite every day.  The overall value appreciation of our general industry has started to stall, with some areas of investments seeing price declines.  This has been a result of the effects of struggling sectors like retail and a rising interest rate environment.  There are other specific sectors like industrial that remain in high demand, though over-competition will soon reel in this overheated marketplace.

What keeps you up at night?

We have built a portfolio of long-term, durable cash flow from the rental stream of operators in a variety of industries throughout the U.S.  Though the assets we own are mission critical to our tenants’ operations, I always worry when a specific industry hits a speed bump.  A great example is the negative sentiment that has flooded the general retail market.  The great “retail collapse” fueled by the strength of Amazon and other internet-based retailers has created turmoil throughout the real estate market.  This is part of the reason the market is flocking toward industrial assets and targeting buzz words like “last mile” and “internet resistant.” Although I might wake in a cold sweat stemming from a Toys “R” Us nightmare (we do not own any), those concerns are generally alleviated when you know you own well-located assets that serve critical business and community needs. Additionally, a diverse portfolio can provide security across economic cycles as certain industries like retail have downturns or corrections.