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Why RREEF Property Trust Is Changing its Stance on Multifamily Assets

CEO Julianna Ingersoll talks about recent shifts in the multifamily sector.

For a while, Julianna Ingersoll and her colleagues at RREEF Property Trust Inc. (RPT) have been pretty bullish on the industrial sector and pretty bearish on multifamily. But while they remain optimistic about the outlook for industrial properties, they’ve recently tweaked their investment strategy a bit more in favor of multifamily amid some shifts in market fundamentals.

Ingersoll, president and CEO of the New York-based daily NAV REIT, says that right now, industrial represents close to 25 percent of RPT’s portfolio, with office at 35 percent, medical office at 10 percent and the rest split between retail and multifamily.

As much as 80 percent of the REIT’s allocations go toward core properties, with the remainder earmarked for real estate equity securities and real estate debt.

As of late August, the REIT’s portfolio contained 11 properties, with three of those—all in the industrial sector—having been added this summer. RPT spent nearly $21 million in July to acquire three last-mile distribution centers in the Miami market.

Ingersoll, who was named president and CEO in May, says the Miami deal aligns with the REIT’s philosophy of picking up industrial assets in high-barrier-to-entry markets. And even though it’s tilting a tad more toward multifamily, RPT isn’t abandoning its commitment to industrial. In fact, Ingersoll says the Deutsche Bank-affiliated REIT is eyeing more industrial acquisitions this year. Whichever asset class RPT invests in, Ingersoll says the REIT aims to buy assets at the right time in a given market cycle “for a specific micro-market.”

“For instance, today may be the right time to buy Portland apartments, but today may not be the right time to buy San Francisco apartments,” she notes.

In a Q&A with NREI, Ingersoll explains why RPT’s acquisition team is betting on industrial assets, why it’s cozying up to multifamily just a little more and why the real estate investment market is becoming more “dynamic.”

This Q&A has been edited for length, style and clarity.

NREI: From your perspective, which asset types look the best right now?

Julianna Ingersoll: Right now, what our in-house view is suggesting is that at this point in the cycle, there’s still a lot of room for growth and demand in industrial. We are fairly picky about the industrial asset class and what types of industrial we like. For example, we like infill last-mile distribution versus markets where there are very low barriers to entry, where there’s a lot of developable land.

With industrial, we have so many growth drivers—historically low new supply, historically high demand, an all-time low in vacancies. The structural shift that has happened in e-commerce suggests that there is a lot of room to run in that asset class—a lot more growth, a lot more demand. Although we are seeing some speculative development, the market realizes the places where it’s hard to develop are even more attractive. When we look at other assets we will pursue this year, we will look at more industrial assets to add to the portfolio.

NREI: What’s your strategy regarding multifamily?

Julianna Ingersoll: That’s been one of our strategic underweights for the last couple of years. That asset class has been extremely expensive, and there’s been quite a lot of new supply in the markets we like. So, we’ve picked up student housing instead. Student housing has been a great asset class to get access to the [multi-housing] opportunity without having to pay more for CBD high-rise apartments. Our only asset [of that kind] is a student housing property that serves the University of Georgia in Athens.

If you look at rent and occupancy growth in multifamily, it has dramatically slowed. We’ve seen quarter-over-quarter reductions in multifamily rents across the country. Most of that is related to the sheer amount of new construction. If you look at what’s been built since 2010, the asset class that was able to gain development financing was multifamily. So, the only thing that developers have been building at any scale has been multifamily. Every single major market around the country has seen massive new construction in multifamily, so the markets we like—core gateway cities—have just been slammed with a bunch of new construction.

But our view on multifamily is starting to change. We’ve seen construction permits in multifamily peak, finally, for the first time since the downturn, and we’ve seen that maybe there’s some relief in pricing in the asset class. We also have a new demand driver, which is tax reform. Homeownership might be less attractive these days [because of new tax-deduction limitations for interest paid on mortgages]. We think that might benefit the multifamily sector. We recently took our decently large underweight position for multifamily and made it smaller. We do think that the fundamentals in the future will start to look better than they have.

NREI: How do you see the landscape for real estate investments changing?

Julianna Ingersoll: The way we’ve invested in real estate in the past versus the way we need to invest in real estate today has to change. There are structural changes that are happening at a much more rapid pace than ever before—e-commerce, the severe dislocation in retail, policy changes, tariffs. We have to be able to pivot much faster from a real estate perspective.

I do love the fact that we’re in a more dynamic environment for real estate investment because that means there are places to make money for our clients. I like where we are in the real estate cycle and the new reality of real estate investment—it’s a lot more dynamic than “buy it, hold it for 10 years and sell it right at the end of the 10-year period.” Today, sometimes we’re holding assets for two years and sometimes for 10 years. Today, we have processes and the technology in place to be able to execute quickly on a sell decision. It’s a really fascinating time to be a real estate investor.

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