Fundrise “IPO” May Pay Off for Investors in 2021
Recovery for commercial real estate this year may be uncertain, but the team at Fundrise doesn’t seem to be concerned. With a diverse investment strategy, the company’s unique approach to raising capital is likely to pay off for investors in 2021.
Fundrise is a crowdfunding app for commercial real estate. No big deal, right? There are multiple real estate apps out there. What makes this one different is how they’ve managed to fund themselves. Their “IPO” is far from traditional.
Rather than an SEC filing or a direct listing, Fundrise has chosen to democratize ownership by offering shares to subscribers. For a mere $1000, anyone can own a piece. Shares are not publicly traded. Investors make money if the company makes money.
Is commercial real estate worth the investment? Buying million-dollar properties is beyond the means of the average investor, especially with major losses expected this year. Putting small money into depressed properties is affordable. They will eventually rebound.
Multiple REITs are Boosting Dividend Payouts
Looking for dividend stocks? Fifty-one equity REITs and seventeen mortgage REITs have already increased dividends this year. Don’t get scared off by short-term losses. Low prices are an opportunity to buy, not a warning sign to stay away.
Take City Office REIT (CIO) as an example. They are down 4% this month, but share prices are up 38.99% for the past twelve months. That’s a clear buy sign. They are currently trading at 50% below normal P/FFO range (price/funds from operations). Dividend yields are 7.5%.
Here’s the interesting part. CIO owns a number of properties that are in secondary gateway markets. Cities like Dallas, Denver, Phoenix, and Tampa are where companies are searching for space in the post-Covid exodus from New York, Chicago, and LA.
Property Re-Positioning and Commercial Space Utilization
Apply common sense. Big Retail isn’t making a comeback in the traditional sense. Those big shopping malls with anchor stores? Fairy tales for our grandchildren. The big stores will continue to operate online. A return to the commercial real estate space is unlikely.
Here’s another scenario. Plymouth Industrial REIT (PLYM) specializes in property re-positioning. They manage distribution centers, warehouses, and light industrial properties. Some folks believe there’s earnings potential this year. It’s possible, but I’m not putting money on it.
An April 2020 article in Forbes recommended PLYM as a strong buy because the company had a “sustainable” dividend and a projected growth rate of 3% for the year. The company had just bottomed out at $10.25 in March. It didn’t take clairvoyance to predict growth.
I bought PLYM in March of 2020 and sold it in June when it hit $15. It opened at $16.53 this morning and I’m fairly certain that they won’t go much higher. I bought CIO this morning for $10 a share because they just bottomed out. Watch what it does in three months.
Watching the Reinvention of the Shopping Mall
I read an article in my local newspaper today (aka saw it online) about a company called Hull Property Group. They are a private commercial real estate developer out of Atlanta that is revamping our local shopping mall. Their plan is to attract small local businesses.
Imagine a shopping mall populated by small local stores where you can actually meet your neighbors and converse with people who care about the business they work for. That’s something worth investing in. It’s almost like buying back my childhood.
Unfortunately, I can’t buy stock in a private company, so I doubled down on Simon Property (SPG) shares instead. They might offload some of their properties this year, but I’m fairly certain they’ll still make me some money. They’re up over 30% YTD, not a bad haul so far.
Net Lease Operators Could be the Best REITs for 2021
There’s a different brand of REIT that makes money by collecting rents from tenants. They are known as “net lease operators” and I am a huge fan. Think back to the shopping mall scenario. Investing in the property is risky. Betting on renter’s income? Not so much.
Store Capital (STOR) owns 2600 properties with more than five hundred tenants. They are diversified across one hundred ten industries and operate in forty-nine states. Net income and dividend payouts have both been growing consistently and 12-month gains are over 80%.
STOR is a no-brainer for me. I bought it this morning. I also bought Realty Income Corp (O). I had them on a list Friday and passed, but I bought in when I learned that their occupancy rate is over 98% right now and has never dropped below 96%. That works for me.
Real estate, which was once a can’t miss investment, is more complicated in 2021. There will be a shift in how larger commercial spaces are being used. The exodus from major cities will continue. Some malls may close. Invest prudently to account for all of this.
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