Real Estate Investment Trusts (REITs)

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Paul Ohanian
Founder and CEO, Scottsdale Wealth Planning, Inc.


If you are in the business of real estate in Arizona, you have experienced firsthand the benefits of ongoing lower borrowing costs. As the year has unfolded, and the Fed has commented on interest rates, “lower for longer” has become the new mantra.

For those active in real estate this is a welcome outlook. Unfortunately, it also means the continuation of painfully low yields on a broad spectrum of traditional income investments. CD and money market fund yields remain under 1 percent for the most part, the 10 year U.S. Treasury yield hovers just under 2 percent (as do most high quality 10 year municipal bonds). This requires investors to consider less traditional investment sectors to find yield which offer “real returns” that exceed inflation and preserve purchasing power.

REITs can provide an easy way to attain direct investment exposure to real estate. The other primary benefit of REIT investments is the ability to attain a source of income-oriented returns that offer diversification within an overall fixed income portfolio. For those involved in real estate development and ownership, it can serve as an alternative investment vehicle with instant liquidity and diversification benefits. REITs enable such investors to put idle capital to work, quickly modify overall real estate exposure and enhance the cashflow as well as return prospects of an investment portfolio.

The broadest gauge of this investment sector is the MSCI US REIT Index, comprised of a diverse group of 149 constituents that represents 99 percent of the US REIT universe. It is broadly diversified across commercial sectors such as industrial, office, retail, hotel/resort and healthcare properties. The index yield of 4.2 percent now reflects the attractive yield premiums investors can achieve through REIT investments. More importantly, the index has produced consistent, attractive positive long term total returns:


Note the 10 year annualized return of 5.95 percent encompasses the negative returns experienced in 2007 and 2008 during the financial crisis (the only 2 years in the past 15 the index did not attain a positive return).

The consistent returns are a function of several long term commercial real estate trends that remain in place. The trend towards urbanization remains strong as growth in the U.S. urban population outstrips overall population growth. Millennials and boomers alike continue gravitating towards mixed-use developments that offer the proximity of jobs, amenities, and reduced automobile reliance. Economic growth has allowed occupancy rates to climb above pre-recession levels across the industrial and retail sectors. At the same time, supply and new additions have been limited as lenders continue to exercise caution.


Paul Ohanian, is founder and CEO of Scottsdale Wealth Planning, Inc., an Old Town-based registered investment advisor, and Certified Financial Planner® with more than 25 years of experience providing financial services to the Valley. Visit him at Refer to the next page ad for services Paul provides.


Information contained in this article is for informational purposes only and should not be considered investment advice. Advice may only be provided after entering into an advisory agreement with Scottsdale Wealth Planning. Information is at a period in time and subject to change. Scottsdale Wealth Planning’s current Disclosure Brochure is set forth on Form ADV Part 2 and is available for your review upon request.