The Real Estate Stock Selloff Is a ‘Gift’ for Investors, Says This Pro

Kolitch has managed the fund since its 2009 inception, but his interest in real estate stretches back decades. “My father, who is my closest mentor and adviser, has been a private real estate developer and landlord for most of his professional career,” says Kolitch.

The fund manager recalls being a teenager visiting a shopping center his father had developed, when he asked his father to explain what he did for a living. The answer—which touched upon the concepts of anchor stores, rent payments, and land appreciation—“sparked a curiosity” that led to a college major and, ultimately, a career.

Kolitch spoke with Barron’s on June 20 about how investor jitters are creating attractive opportunities for real estate investors. An edited version of the conversation follows.

Barron’s: In your latest quarterly letter, you highlighted a number of real estate-related companies that you consider attractively valued. Why now, when so many investors are down on the sector?

Jeffrey Kolitch: There is a fair amount of caution and concern regarding real estate investments because of the narrative out there: We could be on the cusp of a commercial real estate crisis, there are challenges in the housing market, and so forth. We disagree emphatically. The setup for real estate in the public markets is attractive.

For the past three and a half years, real estate–related stocks have faced a trifecta of headwinds. It started with the Covid pandemic, during which many real estate businesses were effectively shut down, which hurt the stocks. Then, real estate has been in the crosshairs of the most aggressive interest-rate tightening cycle in decades. Third, there are sensationalized—in our view—reports of a commercial real estate crisis on the horizon. As a result, many real estate stocks have lagged behind the broader market.

As we evaluate a larger swath of public real estate companies, two- to three-year return prospects look quite compelling.

Let’s take a closer look at the case for office real estate, which has been plagued by vacancy concerns as more people work from home.

There is an assumption that the challenges facing lower-quality buildings are representative of all of commercial real estate. We couldn’t disagree more. Most commercial real estate, and certain individual office buildings, are performing quite well. Yes, old and poorly located B and C office buildings are in both secular decline and perhaps what will be cyclical decline over the next couple of years. The new world, in which many employers are adopting more flexible work arrangements, will create demand pressures for occupancy and rent [issues] for lower-quality office buildings in the next few years.