Portfolio Manager Perspectives

Jeff Benjamin

John Wenker: Commercial real estate a flop, but REITs are hot

Dec 6, 2009 @ 12:01 am

By Jeff Benjamin

If commercial real estate is in such bad shape, why are real estate investment trusts thriving? The answer, according to REIT fund manager John Wenker, boils down to liquidity. “REITs have rallied this year off the theme of access to capital,” said Mr. Wenker, who manages $2.5 billion in the real estate department of First American Funds Inc. “The fundamental environment for commercial real estate is still fairly weak, but public companies with access to capital should do well, and REITS have rallied off that theme.” One offering Mr. Wenker manages is the $655 million First American Real Estate Fund (FARCX), which invests in publicly traded REITs. “Since the beginning of March, more than 60 [REITs] have raised $20 billion worth of public equity, and a couple dozen more companies have raised $7 billion worth of unsecured debt,” he said.

Mr. Wenker said that many of the problems facing commercial real estate, including large-scale vacancies that have led to defaults, have been concentrated on the privately owned side of the business, where leverage was more prevalent during the boom cycle a few years ago.

“Most public REITs are forced to maintain lower leverage levels,” he said.

Mr. Wenker said the key is to focus on areas of “inelastic demand,” such as health care, storage facilities and office buildings that have long-term leases with credit-quality tenants.

One example of the extreme other end of the commercial-real-estate sector, he said, is hotels, which can reset prices on a daily basis, depending on demand.

In an improving economic environment, such pricing flexibility can be an advantage, but it can hurt the bottom line in downturns.

First American Real Estate typically holds about 60 REITs. Mr. Wenker currently likes Federal Realty Investment Trust (FRT) for its exposure to a high-quality demographic through select shopping centers.


What do you think?

View comments

Most watched


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print