In this article, we will take a look at the 10 worst performing real estate investment trusts in 2024.
The Real Estate Sector Post-Fed Rate Cut
Real estate is one of the sectors that has been looking forward to the Fed rate cuts. While the rate cuts were kicked off with a half-percentage point reduction on September 18, the probability of future rate cuts remains on the horizon. Logan Mohtashami, HousingWire analyst, deems the post-Fed cut housing market confusing for the consumer. In an interview with CNBC, he reiterated that consumers naturally assume mortgage rates dropping with progress on inflation. If mortgage rates drop to 6% and stay there, sales which are trending at the lowest levels in history for the third calendar year could grow. In his opinion, the monetary policy is still restrictive for housing although expanding for the economy. On the optimistic side, he sees price growth cooling and active inventory growing. However, rates need to stay at the 6% level as shooting up from there won’t work for the housing market.
Regarding commercial real estate, the Fed’s shift in policy is “the most notable green shoot” according to Wells Fargo analysts since it lays the groundwork for a commercial real estate recovery although it is not a magic bullet. On September 23, Willy Walker, Walker & Dunlop Chairman and CEO appeared on CNBC to analyze the state of commercial real estate post-Fed rate cuts. According to him, the easing phase has driven volumes in commercial real estate. He expects the sector to be healthy as rates go down further. Regarding the residential real estate in the prevailing US political scenario, he sees a huge policy shift between Biden calling for 5% rent control on a nationwide basis to Kamala Harris calling for 3 million new homes over the next four years. Walker suggested a nice thing in the current circumstances would be a proposal from Trump’s admin, similar or distinct to Harris’, entailing what he is going to do about housing since housing is a major US issue.
Previously, Warren Wachsberger of Eldridge Acre Partners joined CNBC to emphasize that the short-term issues facing US commercial real estate have created an investment opportunity. These issues include higher interest rates, less credit availability, and supply-demand imbalances. Hence, the market stress creates a lot of opportunity to invest in the sector.
With that being said, let’s move to the 10 worst performing REITs in 2024.
A crane on a construction site, building a modern office complex for the REIT.
Our Methodology:
In order to compile a list of the 10 worst performing REITs in 2024, we used a stock screener to find the stocks that have fallen significantly on a year-to-date basis. The 10 worst performing REITs in 2024 have been ranked in ascending order of their year-to-date declines. We have also included the number of hedge fund holders for each stock, as of Q2 2024.
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10 Worst Performing REITs in 2024
10. Orion Office REIT Inc. (NYSE:ONL)
Year-to-Date Decline: 25.13%
Number of Hedge Fund Holders: 14
Orion Office REIT Inc. (NYSE:ONL) specializes in the ownership, acquisition, and management of a diversified portfolio of high-quality office buildings in strong suburban markets across the United States. This portfolio is well diversified across primarily investment-grade tenants and economically resilient industries.
Orion has a distinctive position in the net lease sector by being the only REIT with a dedicated single-tenant suburban office strategy. The diversity of REIT’s portfolio is complemented by the high credit quality nature of the tenancy. The firm focuses on capitalizing on the strong growth potential embedded in attractive suburban office markets. Some of the promising suburban market features include population growth, limited new office supply, office-using employment growth, a highly educated workforce, and a business-friendly tax and regulatory environment.
The REIT was proud of its performance as it closed the second quarter. Orion Office REIT Inc. (NYSE:ONL) transformed its portfolio with the sale of 18 non-core assets totaling 1.9 million square feet since the spin-off of its shares from Realty Income. It completed 470,000 square feet of leasing and an additional 55,000 square feet subsequent to the quarter end, thereby bringing the total 2024 year-to-date leasing to 633,000 square feet. For the quarter, the firm recorded total revenues of $40.1 million and a core FFO of $14.2 million.
Orion Office REIT Inc. (NYSE:ONL) has a unique standing in the net lease sector and is undergoing portfolio transformation to create a high-quality right-sized property base. As of Q2, the stock is held by 14 hedge funds.
9. BrightSpire Capital, Inc. (NYSE:BRSP)
Year-to-Date Decline: 25.48%
Number of Hedge Fund Holders: 13
BrightSpire Capital, Inc. (NYSE:BRSP) is a commercial real estate credit REIT that focuses on originating, acquiring, financing, and managing a diversified portfolio of CRE debt investments and net leased real estate investments. The scale of this portfolio is a major competitive advantage for the firm offering portfolio diversification and economies of scale.
BrightSpire Capital serves as one of the largest public commercial real estate credit REITs globally. The REIT defines its edge as its large, diversified, and stabilized portfolio with $3.9 billion in assets under management, differentiated investment strategy across the capital structure, significant transaction and asset management experience, and a highly experienced management team. The REIT has a $2.8 billion loan portfolio with an average loan size of $33 million.
For the second quarter, BrightSpire Capital, Inc. (NYSE:BRSP) recorded a net loss of $67.9 million which was due to impairments on legacy office equity investments primarily. On the bright side, the firm has gotten enough visibility in resolutions to commence lending activities. The watchlist has also been stable quarter-over-quarter.
Year-to-date, BrightSpire Capital, Inc. (NYSE:BRSP) has declined by 25.48% thereby ranking among some of the worst performing REITs this year. As of 2024’s second quarter, the stock is held by 13 hedge funds.