Real estate ‘a really attractive opportunity for investors,’ strategist says

CenterSquare Global ESG Lead & Senior Investment Strategist Uma Moriarity joins Yahoo Finance Live to discuss curbing inflation, prospects for a soft landing, market uncertainty, Fed rate hikes, the economy, and the outlook for equities.

Video Transcript

RACHELLE AKUFFO: Well, as the Fed continues its efforts towards taming inflation, concerns over economic growth remain top of mind for investors. Here with what Fed Chair Powell Jerome had to say on the economy boosting hopes of a soft landing, let's take a listen.

JAY POWELL: Different participants have different forecasts, but generally, those forecasts are for continued subdued growth, some softening in the labor market, but not a recession, not a recession.

RACHELLE AKUFFO: While Powell feeds markets' soft landing hopes, recession fears still hang overhead as the disconnect on the Federal Reserve's tone persists. Well, here to discuss how to invest following yesterday's remarks is Uma Moriarity, CenterSquare global ESG lead and senior investment strategist. Good to see you here, Uma. So it does seem that the markets are seeing a light at the end of the tunnel much sooner than, apparently, Fed Chair Powell is seeing. How are they reading the room right now, these investors?

UMA MORIARITY: Great to be here. A lot of what the commentary and the data has been indicating is that we are seeing the markets somewhat do the Fed's job for it, right? So the question then becomes in terms of what the Fed is trying to achieve right now, did the markets price in a good chunk of that going into this year, right? And in 2022, we saw a lot of focus on inflation, kind of the primary driver at the beginning of the year, and then some of that attention really flipped into what happens in a recession type of an environment.

And so I think there is a chance that the market might have gotten ahead of where the Fed was in terms of pricing in a recession and what that really means for equities and prices here. And so that really might be part of what you're seeing today in terms of the reaction past the Fed meeting yesterday.

RACHELLE AKUFFO: So is the recession, then, the only way to get to that inflation target? Because you're saying inflation doesn't get fixed until demand slows. Demand doesn't slow until labor market cools. Labor market doesn't cool until we get into recession. At what point do we see those dominoes start to fall?

UMA MORIARITY: Yeah, great point. I think at this point, what we're really expecting is the fact that in order for, as you mentioned, that services inflation to really come off, which is what the Fed seems to be looking at, you need to have that labor market slow. You are not going to see the labor market slowed to the extent that achieves that inflationary target without really pushing us into a recession.

And we've seen those types of indicators really across the board if you look at the bond market, if you look at what expectations are from just a growth perspective. I think the consensus still seems to be that we are expecting some sort of an economic slowdown in the back half of this year.

The question just becomes, can the consumer really get through this type of an economic downturn without causing significant impacts from an earnings perspective? And so that's something that we're watching and something that we think is a factor that makes real estate today a really attractive opportunity for investors that are looking for something in their portfolios that can survive some of these economic ups and downs.

RACHELLE AKUFFO: So let's get into that because a lot of people now are wondering, OK, what's next in terms of what are the good investment strategies now that the Fed is in this more normalized 25 basis point hike rate? And you like REITs. So what positions are then better than other investments in this sort of environment when you're not sure if it'll be a soft landing or perhaps a deeper recession?

UMA MORIARITY: Yeah, great point. REITs and real estate in general have the capacity to withstand the impacts of more volatile economic times primarily because of the way that the cash flows for these REITs are structured, right? We're based on the concept of longer term leases. And you see cash flows for REITs being much less volatile than equities, more broadly.

And so as you even look at for earnings expectations and how those revisions have been coming in over the last couple of months, the broader equity market has seen much stronger earnings revisions downward compared to the REIT market overall. And that's really being driven by the fact that the REITs still continue to have fairly steady cash flows, despite of what you might see from an economic cycle perspective.

RACHELLE AKUFFO: Now, even within REITs, obviously, there are certain subsectors. You have data centers, towers, healthcare, rental housing, et cetera. What's the criteria that you're using right now to really pick out the best opportunities in REITs?

UMA MORIARITY: At CenterSquare, we're long-term investors. We think about the types of secular demand drivers that are really going to be helping some of these business models going forward, right? So you mentioned a couple of those items. Healthcare, for example, we have an aging population that needs healthcare, whether it is senior housing, whether it is life science lab space that is developing new technologies in terms of treatments and things like that, right? So those are types of areas within real estate where you see a lot of really strong secular demand drivers.

And then also really focus on the strength of the balance sheet. You're focused on the quality of the management team. Those are all things that you're looking for as kind of table stakes, right, at this point when you're looking at a potential recession. But we're focused on those areas within real estate where we do see those secular thematics that are going to be driving demand for years despite what might happen in the economy.

RACHELLE AKUFFO: Well, always an opportunity to be found in this environment. Uma Moriarity, CenterSquare global ESG lead and senior investment strategist, thank you for joining me in this morning.