Iman Brivanlou, managing director of Income Equities at TCW, has gone over the data. If the last 20 years are any indication, the REIT market will continue to perform, despite increasing interest rates. But, experts do have some concerns that could derail REIT growth. Iman Brivanlou, managing director of Income Equities at TCW, says that runway inflation and a policy error are among is top concerns.
“A policy error would torpedo the REIT space, as it would most assets, but to some extent REITs are more exposed to that because they rely so heavily on the financial markets. That would be a problem,” Brivanlou tells GlobeSt.com.
Runaway inflation is also a concern. “I think the risk of that is low because it seems like the Fed is really on the job this time. Should they back off or should the NASDAQ fall another 15% and you start to get more dovish tones and inflation is not coming naturally under control, I think those things could result in higher than desired 10-Year Treasury.
While these are concerns that could impact REIT performance, Brivanlou has an optimistic outlook on the market. Looking ahead, he does not expect the Fed to take all 11 or 12 rate hikes it has planned, and he doesn’t expect a policy error. In addition, while he expects the 10-Year Treasury will increase, he doesn’t expect it at a rate that would trigger a recession. “Overall, I am in the constructive camp,” he says.
He expects the 10-Year Treasury will rise above the 2.5% standard, anticipating that it will land around 3.5%. “I don’t envision it going much higher than 3.5%, because ultimately, the amount of destruction that follows from that and the key drivers of elevated inflation are going to result in a more subdued inflation experience,” he explains.
Not everyone in the market is an optimistic, and plenty of people are expecting a more dire situation, but Brivanlou says he can’t see the worst-case-scenario playing out. “People are sounding the alarms and talking about central banking policy errors, and I guess I just don’t see it,” he says. “The Fed is job owning, and I think it is taking what the market is giving them. I just don’t think that inflation is going to be 8% to 10% a year from now after they have done six or seven rate hikes, and I don’t see a need for the full 11. But, maybe I am just overly optimistic.”