especially with consumer spending,
according to the minutes. “Some participants indicated that if the economy
evolved as they currently expected, with
economic growth above its longer-run
trend rate, they would likely judge it
appropriate to raise the target range for
the federal funds rate modestly later this
year,” according to the minutes.
REITS’ RELATIONSHIP TO
This is not to say that REITs—like most
companies—don’t appreciate a low-interest
rate environment. For starters, it means
lower borrowing costs, says Mike DeMarco,
CEO of Mack-Cali Realty Corp.
But REITs’ relationship with interest
rates is also tightly intertwined with their
stock market prices.
When interest rates rise, REIT shares
usually take a hit because the market
assumes they are too expensive to compete
with other investments. When rates drop,
REITs are in favor again. Industry advocates
such as REIT association Nareit argue that
rising rates—when they are a function of a
strong economy—are good for REITs
because that also means rising rents.
This is especially true of net lease REITs,
THE LONGER RANGE
Volk says. “People tend to treat us overly
favorably when rates go down and overly
punitive when rates go up.”
With rates increases temporarily on hia-
tus, the environment is very favorably for
REITs right now, says Scott Robinson, direc-
tor of the New York University’s Schack
Institute of Real Estate’s REIT center and a
clinical assistant professor who focuses on
finance and investment. “Fundamentals are
balanced, construction has been modest
and the dovish actions on the monetary
front is all good for REITs and real estate.”
It is a good time, in short, to be executing
on long-ranged plans. That is what Cedar
Realty Trust is doing as it moves forward its
mixed-use development projects, says
President and CEO Bruce Schanzer.
A REIT focused on grocery-anchored
retail, Cedar Realty has long been a fixture
in the Boston-to-Washington, DC corridor.
In recent years it has begun to work on
enhancing the retail component of these
retail properties by adding apartments and
“The idea is to take these retail assets and
bring them into the 21st Century, making
them better amenities for the communities,” says Schanzer. “We are moving to
transform our portfolio to that of an owner
of mixed-use assets that include apartments,” he says. Two examples he cites are
South Quarter Crossing in Philadelphia
and East River Park in Washington, DC.
“These are great examples of Cedar executing on an ambitious urban mixed-use project that will become more of an asset for
these communities,” he says.
Schanzer comes to the issue of interest
rates from the perspective of a former REIT
investment banker; he has spent time at
Merrill Lynch, and then Goldman Sachs.
His take is that the interest rate environment
impacts REITs depending on why interest
rates are behaving the way that they are.
“Sometimes rates are low because we
are in low-growth environment or there is
an effort to stimulate the economy or a
secular shock, such as Brexit,” he explains.
Generally speaking, he continues, a flat
rate environment is good for REITs,
assuming that rates aren’t low because of a
All that said, Cedar Realty’s strategy is a
long-dated one that is not based around
interest rates or what the capital markets
are doing. Rather it focuses on demographics, macroeconomics and current
trends that are driving growth: for example, it has watched Baby Boomers sell their
suburban homes and move into urban
cores. It has watched as other people have
been priced out of the urban core for various reasons to move further out. Ergo, its
strategy is focused on first ring outside of
the urban core.
“We underwrite our projects very conser-
vatively and there is no question than in a
lower growth scenario we don’t want to
underwrite too aggressively,” Schanzer says.
“We want to make returns in a low growth
Low interest rates become a factor
because it means lower borrowing costs,
“People tend to treat us
overly favorably when rates
go down and overly punitive
when rates go up.”
PRESIDENT AND CEO OF
“REITs’ acquisition pace has
moderated because these
companies still need to see
a strong underlying growth
in the economy, which has
diminished a bit.”
CEO OF MACK-CALI REALTY