I’ve written about my aversion to allocating more to “housing” in the past here and here. Housing, whether single family homes or apartment complexes, has had an incredible 10 year run to the point that the rental yields at today’s prices are incredibly low. Bulls point to the shortage of housing at the moment, which is correct. However, when multiples are high / yields are low, a lot more has to go right than in the past. I like the opposite, when not much has to go right to make a decent return.
The only real estate I’ve been buying since late 2019 has been open-air shopping centers. Contrary to apartments, they have traded at much higher yields, due to the fear of retail bankruptcies. They went through a deep economic bomb with respect to Covid as they all were forced to close their doors, and performed very well due to the strong spread between debt financing and property yield. Retail bankruptcies have been manageable due to attractive property locations.
One of our past fund investments in apartments within the South-East US has started selling off buildings, which I am thrilled about. To that end, I’m considering redeploying apartment sale proceeds into a bit more shopping center real estate as their value proposition feels stronger based on the way I choose to invest.
