The Truth About REITs
Public REITs specifically have been caught up in the headlines around commercial real estate and empty buildings as we've talked about previously. The reality is public REITs don't have a lot of exposure to commercial real estate. If you look at the S&P 500, for example, there's really only one commercial real estate REIT in that portfolio.
The rest of the portfolio is made up of things like cell tower REITs, data center REITs, industrial REITs, and self-storage REITs, all of which have very different economic dynamics that drive their relative performance and their profitability profile. We've talked about the data center demand, and that segment of the market has been extremely strong over the course of this cycle.
Importantly, when you think about REIT, what you tap into, and it's similar to the story around MMBD, it's similar to the story around CCNR. You've got a portfolio management team that knows this space inside out, lives and breathes REITs every single day. The relative performance of REIT compared to the sort of typical allocations that people make in terms of passive beta-oriented REIT strategies has been tremendous.
You're looking for opportunities in a market that's at all-time highs where stuff either hasn't moved or it's underperformed, and maybe you're reallocating to other segments of the market. REIT certainly checks that box, and then you're able to leverage a portfolio management team which has great expertise and a strong track record in this category. That's a nice marriage for advisors and investors who are trying to allocate to the category.
The other piece is that we've seen this steady wave of redemptions and gating in private REIT strategies. People piled into private REIT strategies, tried to get out, and were unable to get out. We've seen some strong relative performance of public REITs relative to private REITs.
For investors who either have no exposure to REITs, have just been defaulting to the benchmark which has in some cases hundreds of names, some of which are low quality, some of which are high quality, some of which might be benefiting from some of these strong economic tailwinds, some of which may not be. Then you're also maybe that subset of investor who's been in a private REIT strategy, understands the benefits of investing in real estate, but is looking for opportunities in the public sphere. That's really where REIT comes in. Again, if you look at the track record of performance and the opportunity set for REITs on a go-forward basis and the makeup of public REITs compared to where it was say 20 or 25 years ago, it also stands to benefit from some of these economic mega trends.
