Suddenly, 2016 Becomes a Good Year for REITs

Congress plans to continue to push back on the Labor Department’s final fiduciary rule.

WASHINGTON, DC—And just like that, the tide turns for REITs, not only in the market but also in official Washington DC. Last week NAREIT, the industry association representing REITs, reported that the total returns of the FTSE/NAREIT All REIT Index rose 10% in March. The S&P 500 Index added 6.8% in comparison. For the year up until April 1, the total returns of the FTSE/NAREIT All REIT Index reached 5.9%, while S&P 500 Index returns rose 2%. “There wasn’t a bad place to be in the REIT industry last month, and that mostly holds true for the first quarter as well,” Brad Case, NAREIT’s senior vice president for research and industry information, said in a video posted to the association’s website. REITs Exempted from The Labor Department’s Fiduciary Rule REITs, or rather REIT ETFs, also got some surprisingly good news with the long-awaited release of the US Labor Department’s final rule   requiring advisors overseeing retirement accounts to act under a fiduciary standard. This has been a long involved issue punctuated with heated discourse and political machinations. Indeed, this issue is not over as far as many in Congress is concerned and measures are being introduced to stymie its implementation. However, given the Obama Administration’s strong support for the rule, they are highly unlikely to succeed. In the final document, the Labor Department included both REITs and non-traded REITs under the so-called “best interest contract exemption.” This exemption allows advisors to receive incentives from financial companies as long as he or she agrees to put the client’s interests first. The Labor Department’s final rule also exempted property appraisals from being “considered fiduciary investment advice for purposes of the final rule.” A working group within the Real Estate Roundtable’s Real Estate Capital Policy Advisory Committee is assessing the potential impact the rule will have on real estate capital formation, investment and lending. The working group is being led by Frank Creamer, the chairman of The Roundtable’s Tax Policy Advisory Committee, and he has recently held conference calls to discuss the rule and possible “next steps,” according to the roundtable. The association notes that this rule, no matter how softened some of the previous proposals were, will have some kind of impact on commercial real estate finance. “The economic scale of those potentially impacted by the DOL fiduciary rule is immense,” it said in its summary of the new policy.  “Individual retirement accounts (IRAs) now hold more money than either defined benefit or defined contribution plans — over $7.3 trillion in assets — and represent an increasing source of capital for real estate investment.”