Certainty is key
As 2020 continues to forecast a future of financial turmoil for some REITs, it is beginning to separate the weak from the strong. All of the factors that allow any REIT worth their salt to remain competent in this time are related to one thing: certainty.
Take a look at most of the REITs out there and you will find that most are publicly traded. While this does not necessarily mean that these REITs hold disappointing assets or that they are managed poorly, they simply are tied to what investors believe the actual value of each company is. This tie to the stock market is what introduces large amounts of volatility to these public assets. Just one month ago marked the third biggest drop in stock market history of about 12% in just one day, demonstrating exactly how uncertainty can backfire.
Instead of relying on these ties to the stock market, some REITs choose instead to be in the private real estate market. Their market is tied directly to whatever the value of the property in question is. The value is based primarily on the income it generates, the quality of tenants, condition of the building, as well as comparably to similar type buildings trading in the same geographical area.
These are tangible criteria and are not determined by what investors feel the market is going to do, which in turn drives the value of public REITs. A great advantage of privately held assets is that property values move slower which creates better decisions for management due to the ability to predict how market conditions may affect property values. Real Estate tends to lag behind the stock market by about six months, so as building owners we can adjust and position our properties accordingly giving better certainty to our unit-holders.
Liquidity equals volatility
During this period of heavy stock market fluctuations, there is great concern as to what is happening to people’s savings — their retirement plans. One of the main core differences between a publicly-traded REIT and a private REIT is that a private REIT is not as liquid as its public counterpart. It is that liquidity that creates volatility. In all cases of investment, if an investor can withdraw their money from a company within a 24-hour period, that is going to create volatility in the stock market no matter how small.
This allows a private REIT such as InvestPlus to make decisions based on local private market conditions instead of “knee-jerk” reactions due to the public markets deciding one day that the valuation of the company was worth less due to conditions unrelated to itself or the market it is in. For more information on how InvestPlus finds success during financially troubling times, read the top 5 reasons to invest in a REIT.
InvestPlus Real Estate Investment Trust (IP REIT) is a private real estate investment fund, based in Calgary, Alberta. IP REIT is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition, ownership and management of commercial and residential properties in primary and secondary markets in western Canada. Management has transacted more than $97,000,000 in buildings in the provinces of BC, Alberta and Saskatchewan. The current portfolio is appraised at more than $47,000,000 and comprised of 139 rental units and more than 100,000 square feet of rentable area.