Real estate investment trusts (REITs) have become an increasingly popular way for investors to gain exposure to real estate in California. As one of the world’s largest economies, California offers a deep and dynamic real estate market covering various property types. Understanding the landscape of REITs in California can help investors evaluate opportunities in this sector. This article provides an overview of the major REITs focused on California real estate and summarizes the benefits and risks of investing in them.
Publicly Traded REITs With Significant California Real Estate Exposure
Many large, diversified REITs have exposure to California real estate as part of their national or global portfolios. For example, Prologis (PLD) has over $4 billion invested in California logistics real estate. Welltower (WELL) owns senior housing properties worth over $1 billion in California. Simon Property Group (SPG) has premier mall assets across the state. Investors can gain exposure to these blue-chip REITs through direct stock purchase or REIT ETFs and mutual funds. However, there are also more specialized REITs focused predominantly on California real estate across sectors like apartments, offices, retail, healthcare, self storage, etc. These include Essex Property Trust (ESS), Douglas Emmett (DEI), Rexford Industrial Realty (REXR), American Assets Trust (AAT), and Public Storage (PSA). While offering more concentrated exposure, these REITs also have risks related to regional concentration and property type.
Private California-Focused REITs and Investment Platforms
In addition to publicly traded REITs, there is a growing set of private real estate investment platforms focused on California. These provide accredited investors access to institutional-quality real estate in major California metro areas. For example, CrowdStreet enables investors to directly invest in individual value-add multifamily, office, and retail deals in Los Angeles, San Francisco, San Diego and Sacramento. Cadre provides diversified access to portfolios of commercial properties in major California markets. The benefits of these private REITs include higher yields, focus on appreciation potential, and diversification across sponsors and strategies. However, they also come with lower liquidity compared to publicly traded REITs.
Benefits of REITs for California Real Estate Investing
REITs offer several benefits for investors looking to add California real estate exposure. First, they provide passive exposure to portfolios of assets diversified by geography, property type and tenants. This mitigates the risks and capital intensity of owning a single property directly. Second, REITs focused on value-add and opportunistic strategies can offer higher growth potential compared to stabilized core real estate. This is attractive in fast-growing California metro areas like San Francisco and Los Angeles. Third, REITs provide access to institutional-quality real estate that most individual investors cannot easily access on their own. Finally, REITs offer liquidity, professional management and regulatory oversight.
Key Risk Factors to Consider
However, investing in REITs focused on California real estate also comes with some risks to consider. First, there is concentration risk at both the property type and regional economy level. Factors hurting California’s growth, like high taxes and living costs, can negatively impact real estate fundamentals. Sector-specific issues, like oversupply of apartments or self storage, can also disproportionately affect concentrated portfolios. Second, private REITs carry higher investment risk with less reporting, regulation and liquidity. They also rely more heavily on manager skill for value creation. Finally, rising interest rates could increase REIT borrowing costs and make bonds relatively more attractive than REIT dividends.
In summary, REITs offer a convenient way for investors to gain exposure to California’s dynamic real estate market, which is the largest in the U.S. Both public and private REITs focused on the state provide targeted real estate investment opportunities. However, risks related to sector and geographic concentration, as well as liquidity and investment risks for private REITs, should be evaluated.