Real Estate is one of the oldest forms of investment. Landholding records have been found even in the early Roman period. Landholding rights have also been discussed in the famous Indian work Arthashastra. Land ownership historically was primarily tied to agriculture and farming. Investment in real estate that is used for other purposes developed more recently. The earliest investment in large-scale real estate was possible only for the ultra-rich. However, this changed with the introduction of REITs.
REITs:
REITs were introduced in the US during the 1960s when President Dwight D. Eisenhower signed the law that made it easier for small investors to participate in large and diversified yield generating real estate properties.
Source: MSCI
REITs are available across different categories. Some of the major and minor classifications include:
Office REITs: Office REITs own and manage office properties, including both multi-story buildings and office blocks. These can either be in the central business districts or special zones like tech parks. Examples include Alexandria Real Estate (ARE) and Boston Properties (BXP).
Industrial REITs: These own and invest in industrial real estate and rent out to factory establishments. Certain Industrial REITs also invest in warehouses and are a key component in the eCommerce industry. Examples are Americold Realty Trust (COLD) and Duke Realty Corp (DRE).
Retail REITs: Retail REITs invest in shopping centers, malls, establishments with big-box retailers, and other retail outlets. Retail REIT tenants pay both rent and property operating expenses. Examples are Acadia Realty Trust (AKR) and Alpine Income Property trust (PINE).
Source: Morningstar
Hotel REITs: As the name suggests, these own and invest in hotels, resorts, across different segments right from budget to luxury establishments. Examples include Apple Hospitality REIT (APLE) and Chatham Lodging Trust (CLDT).
Residential REITs: Residential REITs invest in residential properties including single-family homes, apartments and condominiums, and student housing facilities. Examples are American Campus Communities (ACC) and Apartment Income REIT (AIRC).
Forest REITs: These invest in woodlands and generate income from selling timber. Examples include CatchMark Timber Trust (CTT) and Rayonier Inc (RYN).
Source: Morningstar
Healthcare REITs: These invest in properties associated with the healthcare industry, including clinics, assisted living facilities, and nursing homes. Examples include Community Healthcare Trust (CHCT) and Global Medical REIT (GMRE).
Self-storage REITs: These own and operate storage facilities. Examples are CubeSmart (CUBE) and Extra Space Storage (EXR).
Infrastructure REITs: Infrastructure ETFs invest in properties that provide infrastructure such as cell-phone towers, gas pipelines, etc. Examples are American Tower Corp (AMT) and Crown Castle (CCI).
Source: Morningstar
Data Center REITs: These invest in data centers are one of the fastest-growing segments in the REIT space. Examples are CoreSite Realty Corp (COR) and Digital Realty (DLR).
Source: Morningstar
Real Estate – Bubbles, Crisis, and Mania:
The real estate sector has historically seen several crises. Most of these crises have also involved bubbles, herding, and an eventual spillover to other market areas.
The Panic of 1837 was one of the earlier crises that involved collapsing real estate prices and eventually led to a depression that lasted a decade. The Florida real estate bubble of the 1920s was a precursor to the crash of 1929, followed by the long 'Great Depression.' More recently, the Japanese real estate bubble of the late 1980s was spectacular. Real estate prices in Japan rose to astonishing levels in a short period. The Tokyo metropolitan region especially saw a multi-fold increase in values. It all collapsed in 1992, and the Japanese market is still recovering from the effects of that crisis. The sub-prime crisis of 2008 had a much more significant impact globally and gave way to most modern economic policies, including quantitative easing, and zero and negative interest rates. The latest in this list is the recent China Evergrande crisis. The largest property developer in China, unable to meet its obligations, was on the verge of bankruptcy. The Chinese government has taken control of various arms of this entity to stem contagion. Several US and European companies have exposure to Evergrande, through corporate bonds. The Evergrande issue is an evolving situation with unknown long-term repercussions.
Investment Opportunities:
Real estate investments have the advantages of recurring income and capital appreciation and as such are quite popular among income-seeking investors. Direct investment into REITs is one way of getting exposure. There are also non-US REITs that trade in the US, including Brookfield Asset Management (BAM) of Canada, and BrasilAgro (LND) of Brazil. Many ETFs are available which in turn offer exposure to a basket of REITs. These can be broad exposure ETFs like the Vanguard Real Estate Trust (VNQ), or iShares US Real estate ETF (IYR). ETFs are available for exposure to the non-US REIT market as well. These include Vanguard Global ex-US Real Estate ETF (VNQI) and SPDR Dow Jones International Real Estate ETF (RWX).
Source: Morningstar
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