Real estate thrives amid healthy capital markets

Bob Zenouzi
Chief Investment Officer — Real Estate Securities and Income Solutions (RESIS)

I would describe the current environment in real estate as very positive, with solid fundamentals and very favorable capital markets. Today we have very low supply in the fundamental aspects of real estate, which is leading to very strong rent growth. Secondly, the capital markets…specifically in the capital markets, it’s about the cost and the availability of debt and equity capital. We’re seeing very low cost of capital, which is the raw material for the real estate industry and, secondly, many capital sources are available to real estate. Both in the equity markets, the debt markets and, for example, the unsecured debt market, the asset-backed markets are wide open for real estate. Private equity is providing a great deal of capital and that’s helping values and increase transactions. And lastly, the sovereign wealth funds from Europe, the Middle East, and Asia are pouring capital here in huge sums into the United States.

So, the overall environment is very positive. It’s very unlike 2006-2007, where we had financing that was above the cost of capital and we had too much supply. It’s the complete opposite today, and I feel very positive about the outlook for the real estate industry.

Scott P. Hastings, CFA, CPA
Senior Equity Analyst

Building the portfolio today, and our outlook today, is really predicated on a couple factors. One of those is a very favorable credit backdrop. The second is strong fundamentals. When we look across the globe, where we see that is really in the U.S. There’s a very strong fundamental backdrop. We continue to see very strong operating numbers throughout the companies, and the credit markets are incredibly supportive of these valuations. Other areas across the globe, whether it be in Europe or Japan, are very predicated solely on one thing: lower interest rates. We really haven’t seen any evidence of a fundamental recovery, and the valuations, we believe, are stretched across those regions. So, we look at today — we’re very overweight the U.S. and we think that’s the best place and the best value for our investors.


The views expressed represent the Manager’s assessment of the market environment as of May 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager’s current views. The views expressed are general in nature and do not relate to a particular mutual fund.

REITs refer to real estate investment trusts.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 800 362-7500. Investors should read the prospectuses and the summary prospectuses carefully before investing.

IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

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