(SAFE), (AFCG) – Finding Principal Safety, Capital Appreciation With Real Estate Investments
Commercial real estate can offer investor portfolios diversity and income in the face of a multi-year boom in demand.
While unpacking commercial real estate as an investment, Tom Zuber of Zuber Lawler chaired a Benzinga Reopening Stocks Summit conversation between Ian Selig of Safehold Inc (NYSE: SAFE) and David Auerbach of the World Equity Group.
REITs in the game: In part due to the so-called reflation trade – an expansion of economic output as a result of stimulus and pandemic reopening – real estate is experiencing a boom.
In one example, Auerbach featured EPR properties (NYSE: EPR), formerly Entertainment Properties, a real estate mutual fund that owns and finances income generating amusement parks, theaters, resorts, and other entertainment properties.
“Not only are the cinemas reopening, but EPR is also one of the partners and exclusive developers of a small concept called Topgolf that is owned by Callaway,” he said.
“If we overcome COVID, we will focus on those adventure events – cinema, driving range, ski area, water park, amusement park, indoor skydiving – that you cannot replicate online.”
Put simply, investors can use names like EPR, Innovative Industrial Real Estate Inc (NYSE: IIPR), Power REIT (NYSE: PW), AFC Gamma Inc (NASDAQ: AFCG), Eastern Government Properties Inc (NYSE: DEA) and Simon Property Group Inc (NYSE: SPG) for engaging in growth opportunities in real estate sectors such as hotels, malls, offices, data centers, cannabis cultivation, and cryptocurrency mining facilities, among others.
“Raising capital is very much in vogue in the REIT sector,” continues Auerbach. “The reason for this is that REITs represent 10 year treasury, which is only trading at 1.25%. The average REIT dividend yield is less than 4%.
“Basically, you get around 275 basis points in your pocket to buy real estate.”
Basic lease love: Long-term leases are agreements for the development of land during the rental period, which typically lasts 99 years. Rents will be collected during the term. After that, landowners like Safehold acquire all structures that are built on the land.
Through its approach, Safehold, the only publicly traded company focused on long leases, is democratizing real estate ownership, giving owners a better opportunity to unlock value under their buildings, and putting investors at risk of a multi-year commercial real estate boom.
Graphic: Typical Safehold investments in well-located properties.
There is no other place in the investment world where two types of investments, land and buildings, have to be held together, says Selig.
“In the corporate world, you don’t have to buy the company’s bonds to buy its stocks,” he said. “That is the case with real estate because there has never been an investment grade national company that acquires this piece of land in a way that actually increases the value of the building.”
In addition, Safehold offers three efficiency enhancements for building owners.
The first two are capital and costs due to the separation of land and structure, which reduces mortgage, tax and brokerage fees. Thirdly, the maturity risks are reduced to the entire part of the capital structure through the inclusion of almost permanent capital.
Investors “a 100-year passive investment is given liquidity on a daily basis, and that’s heavy arbitrage,” Selig said as he added nearly 200 basis points of value to long-term high quality bonds.
“For the first time we have made investments in long-term leases available to individual investors. An investment that offers fundamental security, growing returns generated through contractual cash flows, along with the opportunity for significant capital growth. “
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