Buy REIT If You Know When to Sell
Opportunities and concerns surround a real estate business boom
Physical gold mine is buried under the stapled thin hidden papers of tech lease contracts. The contracts in the safe of real estate developers are hard to find but until the termination, they promise to rent the depots with a long span of 20 to 25 years. The developers prefer a long-term lease agreement with big clients including tech leaders, Amazon. The term has been said to shorten in less than a decade to fulfill the requests of the “asset-light” clients. Their impatient and demanding customers look at the very short time horizon in the fast-changing and unpredictable channel. In industrial real estate, few active investors select an option with their investment decision to lease more than two decades now. Their view has become much shorter than a decade, too. The value and returns of five major industrial real-estate investment trusts (REIT) in Europe and America unfolded more than double five years ago to reach $250 bn and recorded nearly 20% rise on the run in the compound annual returns of three years respectively. These signs pushed REIT into a physical gold mine as opposed to non-physical gold mine often referred to Bitcoin. Three analytical aspects are presented in a story of a British newspaper, The Economist, which marked publication date of May 11, 2019 under the headline of Schumpeter, The REIT stuff. The media describes expanding tech property facility to warehouses, data centers, and telecommunication towers. In this property business boom, do I invest in REIT? My answer is, “No, because I will not have sufficient information as to when to sell this financial product.”
For a start in three analyses, the e-commerce established a physical space for large logistics construction. The e-commerce giant such as Amazon expanded the backbone of delivery to their customers. The firm raised the service level by shortening the warehouse-to-door parcel delivery time to one-day for its “Prime” customers. The higher the service level, the bigger the physical space required in logistics center. The service is open in 24 hours a day, 7 days a week, and the capacity to fulfill the order look for its maximal level. Such a business requirement will organize logistics skills into physical owners accumulating intellectual property. To illustrate an actual example, the paper mentions Prologis. Prologis is probably a third-party logistics firm (3PL) to service the e-commerce business. A large scale numbers of final products on sale in the warehouse and efficient operations to minimize the cost are the key to its success. The e-commerce and logistics jointly grow in the digital economy. This makes sense.
The second area of lucrative return lies in the portrait that the cloud-computing also grows to build additional data centers to service the clients of tech firms such as Amazon and Microsoft. Their data centers operate a large number of servers in the property which offer space, cooling, power, and bandwidth. Data gathering and maintenance require the infrastructure stakeholders in business with additional tight measures such as security and surveillance, too. This is a good business cycle. My short experience in data center reminds me of the location of the center in the northwest of Tokyo for serving the multinational trade house which employed 30,000 workers in Tokyo.
The third opportunity is supported by the emergence of the faster and reliable bandwidth of 5G network, which also enhance the value of REIT in a good performance. The owners of mobile towers usually bought a land for an optimal location to construct their masts which traffic the signals into their clients and customers in all directions. A big telecommunication player such as NTT in Japan has already mapped the locations for fiber-optic network towers to transmit the digital data from the towers. These locations, as often cited by Japanese historians, are the identical place for Japanese warriors’ castles built in the wartime. The space is wide and the surface is solid to build castles for sending a stream of codes in non-digital and verbal communications at that time.
Yet a shadow cast the worries onto my investment decisions. With all these opportunities in mind, the question comes to me, “Will you invest in REIT with the money from my pocket? My response is “No, I will not”. The reason is that I don’t get the information as to when to sell and this financial instrument is primarily for property barons with enough information. The downturn of cycle is the moment when tech firms start to terminate the lease contracts with real estate developers. There is no way that I acquire such information as a general investor to catch up with the critical market news. The developers may not release the notice of cancellations to the public before the market gets the wind of it. The bad news will be buried in the financial results or hidden in the back story for long time to come. It may not be disclosed in the capital market, either. Unless you are not in position with up-to-date information around your business, such news may not come to your knowledge. Mostly property barons know it first with a form of business-to-business contacts in the real estate industry.