"In an inflationary environment, we want to be in shorter term leases where despite higher inflation landlords can increase rent to reflect higher costs they have," says Rosenberg. Hotels, as one example, have short-term leases. So does self-storage. 

"We are not heavily invested in long term lease structures where they are very much bond-like. A REIT may own the asset but it cannot raise rent for many years. So we are avoiding sectors with long-term leases that are more bond-like and sensitive to rising interest rates."

Here's another guideline that HGI Capital Management uses: Seek out valuations that are trading at a deep discount to the real estate value. "Despite continued fundamental challenges there are some mainstream office spaces where we see tremendous value in these stocks," Rosenberg says. "They are trading so cheaply now." 

What HGI Capital Management is Holding 

Here are some of the names among its holdings.

Public Storage. Its business model is focused around shorter term leases and its fundamentals are very strong. "It's a very sticky business," Rosenberg says, as many people might intend to keep their possessions in storage for a few months but wind up storing them for years. "There is not a lot of supply and tremendous rent growth. We expect to continue to see strong rent growth and it has a fantastic management team." 

Alexandria Real Estate Equities. A landlord of life science assets, it provides office space for pharma and lab operations. "It is one of a kind as it is dedicated to lab space and it has retained strong fundamentals throughout the slowdown. There isn't much competition for investors and even if there is economic slowdown we expect to see continued funding for this area."

Admittedly Alexandria can't increase its rents overnight but the typical lease is 5 to 7 years instead of 10 to 15 years. "Twenty percent of leases expire each year and receive a meaningful increase in rent.

This year with the correction we found an opportunity to invest, the stock used to be very expensive."

Ventas. With its significant holdings in senior housing, Ventas is well positioned from a demographic perspective as it provides services for older people. "It is an area that suffered meaningfully during COVID-19 and then demand started to come back," Rosenberg says. "It's coming out of that weak period and we now see fundamental improvement and with the average lease term being approximately one year the landlord can increase the daily rate of the resident."