REAL ESTATE
Cell Towers Are Different
He notes that not all REITs are affixed to interest rates , contrary to general perception . Cell towers , for instance , are more a play on the expanding digital economy than on dividend income . These REITs offer long-term leases on towers to telecommunication companies such as Verizon , AT & T and T-Mobile .
He points out that the cell tower sector is the largest distinct property type in the FTSE Nareit index , representing 13.86 % of it . And he says consumers ’ appetite for faster technology such as 5G is pushing the demand for more antennas , which boosts companies ’ revenues .
“ The prospects of cell tower REITs are obviously very different from the prospects of office ,” says Serton . “ No matter how the economy is doing , AT & T and Verizon are going to need to hang their equipment on towers .”
But despite a positive outlook for the sector , investors have yet to dial into the cell towers . It was one of the weakest sectors in REITs last year , losing 1.5 %, according to Nareit . It fell 28.6 % in 2022 . But bulls think the sector ’ s valuation will give investors less sticker shock than the average cell bill . S & P ’ s telecommunications sector traded at an 11.1 % discount at the end of the year , which was slightly cheaper than all REITs .
The largest holding in Cohen & Steers ’ $ 5.3 billion flagship fund , Realty Shares , is American Tower Corp ., which has agreed to sell its tower operations in India to Brookfield Asset Management for $ 2.5 billion to pay down debt and focus on its U . S . cell tower and data center operations .
Too Many Apartments
While the oversupply of apartments is hurting the multifamily market , Cohen & Steers is finding the single-family rental sector more hospitable . That sector rose 20.6 % last year , after dropping 31.9 % in 2022 , Nareit says . S & P ’ s residential sector traded at an 11.9 % discount at the end of last year .
Serton says that some property types let landlords increase rent even in more challenging economic environments , and says apartment REITs are benefiting as people move from large urban areas to regions like the Sunbelt . Meanwhile , millennials who have entered their prime home-buying years are turning to renting homes instead of taking on highrate mortgages .
Office Discount
The office sector rallied sharply in the fourth quarter with the rest of the REITs , but it trades at the largest discount , at a median 28.1 %, and for good reason . The calls from corporations and politicians imploring workers to come back to the office have mostly fallen on deaf ears , and hybrid work seems likely to stay . That means it ’ s mostly a stock picker ’ s market , and giants like Boston Properties , which owns a ton of Class A properties in Manhattan , are top picks .
For the most part , analysts like Todd Lowenstein , managing director and chief equity strategist at HighMark Capital Management , are avoiding the office sector altogether , seeing “ further shakeout in commercial real estate .”
“ There ’ ll be some attractive opportunities emerging after that reckoning ,” Lowenstein says .
In the meantime , sector allocators seeking steady dividend income can find a home in several other fundamentally sound REIT markets .
Next Chapter continued from page 28
brained , analytical advisors . But clients and their families are very much emotional beings and become more so as retirement looms .
That problem becomes worse as they realize that their own longevity might spoil their plans to enjoy the “ go-go ” years of retirement . In 2024 , more Americans will turn 65 than ever before . ( At the Alliance for Lifetime Income , we call this phenomenon “ Peak 65 .”) The median age of America ’ s 70 million baby boomers is currently 68 . They have more in financial resources than they ’ ll likely have in a few years . That ’ s the trend we ’ re not ready for — and the one that will test the loyalty of clients now hearing about their chances in Monte Carlo simulations .
Advisors thinking of moving into annuities should start small . Very few of the managed account converts went in 100 % at the start . Most focused on discrete uses , especially for retirement accounts . Their clients needed to be open to a different approach .
Annuities pose similar opportunities and adoption challenges . When you dive in , you should start by complementing investment portfolios . Instead of a retiree using money from their required minimum distributions , they could keep it invested and working in the markets while using income from an annuity contract . The added value these products offer is to more efficiently solve for specific risks or objectives than can be accomplished by investing .
Change For The Better
No one likes change . New ideas and processes can be clunky , especially in the first years they ’ re being used . But according to one of the nation ’ s largest wealth management firms , Morgan Stanley , advisors who are leading this adoption curve are earning as much as four times the net new assets and 100 % more revenue growth than those who aren ’ t . That ’ s a return on investment even a stockbroker would recommend .
STEVE GRESHAM , senior education advisor to the Alliance for Lifetime Income , is also managing principal of NextChapter , a financial industry leadership community dedicated to improving retirement outcomes for everyone . He formerly led the retail client strategy for Fidelity Investments as executive vice president and is the author of five books about wealth management and retirement planning . See more at protectedincome . org
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