Rocky run for REITs

The pain keeps coming for beaten-down commercial real estate stocks.

Real estate investment trusts, or REITs, are suffering from sharply higher interest rates, which drive up borrowing costs, cut into profits, and make their yields less attractive relative to government bonds.

Turmoil in the banking system is the latest drag on REITs. Investors worry that banks may tighten business lending, which REITs rely on to refinancing their debt.

“With much being made in recent weeks about the $1.4 trillion of commercial real estate debt coming due in the next few years, investors will need to become comfortable with the financing environment for commercial real estate before refocusing on REIT fundamentals,” analysts at BTIG wrote in a research note this week.

The FTSE Nareit Equity REITs Index, which includes virtually all REITs, has fallen 25% over the past 12 months — nearly double the S&P 500’s decline.

Office space REITs have been hardest hit, with vacancies yet to recover from the pandemic era work-from-home shift. The sector, which includes Boston Properties and SL Green Realty, is down 52% from a year ago.