It’s the last day of the second quarter and the S&P 500 is down only about 3% for the year despite the pandemic. This year has been nothing short of a roller coaster and it is reflected in the quarter-to-date returns. In terms of year-to-date returns, real estate is looking like one of the worst asset class to be in.
Announcer: The views and opinions expressed in the program are not necessarily those of this radio station or its sponsors, and should not be construed as legal tax or investment advice. You should always consult the appropriate advisor before making any financial decision. All rights reserved.
Announcer: Now AM 1220 KDOW presents New Focus on Wealth with certified financial planner Chad Burton, drawing from his 20-year background in finance and investing to help you make sense of your money matters. New Focus on Wealth. Get a new focus on personal finance, wealth management, Wall Street, and the economy. Now your host for New Focus on Wealth, Chad Burton.
Chad Burton: Welcome into the show. I am your host, Chad Burton, certified financial planner. If you have a money question for the show, shoot me an email. It’s email@example.com or go to my website newfocusfinancial.com, chadburton.com it goes to the same place. So here we are. The last day of the second quarter. Now futures are looking slightly negative as we come upon the market open today. But man, what a roller coaster ride of a year so far, and check out these quarter to date returns.
Chad Burton: So the Russell 2000, which is small cap stocks, yesterday up three and a half, almost 3.5% For the quarter of 23.7%. Now year-to-date, small caps still down 14%. The S&P 500 was up 18.78%, somewhere around in there. Now again, today, the market’s going to change a little bit and change these numbers. Check this out. Emerging Markets up about 18%. International Developed about 15.6%. Dividend achiever stocks, which are still better year-to-date than those indexes still at 13% and real estate, which is one of the … That’s probably the worst performing asset class. You’ve got IYR, which is the I shares version of the real estate index of 12.74% for the quarter down 15% for the year. RWR, which is a spider version, Dow Jones read index up 8% for the quarter, down almost 23% for the year, and bonds that they are yet AGG. I shares core U S aggregate bond index about 3% for the quarter and 6% for year-to-date. In terms of year to date returns, we’ve got real estate looking like the worst performing asset class year-to-date.
Chad Burton: Second is small caps. Now those two things make sense. We’ve got, coming up in the third and fourth segment, the head manager of a Neuberger Berman Real Estate Investment Trust Mutual Fund, a REIT fund, a fund that is still down for the year, but stellar performance compared to the indexes. I’m talking about real estate. And it’s really interesting because you got some of my favorite local restaurants closing for good, you’ve got office space. How is it going to work? Are company’s going to need more office space? Cause they got to spread their employees out, or are they going to just instead have half of their employees work from home now? And then you’ve got malls already dying slash dead. They’re going to get turned into apartments, all sorts of crazy things going on in that market. So we’ll talk a little bit about that.
Chad Burton: REITs are interesting. REITs are publicly traded stocks, but they have a different tax formation. So they have to pass on 90% of their net business income or their net income rather, onto the investors in the form of income. And the income is pretty tax efficient between return of capital and qualifying for the one 99, a deduction it’s pretty tax efficient income, but it’s lower income than say 10 years ago. Funds from operation is how you analyze these things and you’re paying a lot for them these days. So it’s an interesting area to look at, because you want to look at it and say, “Gosh, it’s still down so much for the year. It must be valuable. It must be a good time to buy,” but a lot of movie farce there. Speaking of moving parts. I mentioned this on Rob’s show yesterday, if you took a required minimum distribution from either your IRA, 401k, 403B or even your inherited IRA now.
Chad Burton: There was an update to the CARES act. You have until the end of August to roll that back over, to redeposit it in your IRA or even now inherited IRA and avoid the taxation on that. So that’s a change. There’s now a bill on PPP loan forgiveness calculators introduced in the House to create a simple online calculator to help small business owners fill out loan forgiveness forms. And there’s going to be another round of this, I assume. There’s just going to have to be, based on what I’m seeing out there in the world of small businesses.
Chad Burton: If you’re tech, healthcare, whatever, you’re fine, but it’s the small businesses that are getting affected because you’re having a whole other slew of closures of places like Arizona saying, “Okay, we’re back to closing bars for another 31 days,” and that’s just going to be the death now and a lot of restaurants. So the virus is here to stay for a bit. This is way off topic here, but everybody’s having to wear a mask now, right? And I keep seeing these stories of masks creating mouth breathers. It’s harder to breathe through your nose at the mask because you got that thing pinched around your nose. This is about one of the worst things you can do for not only your immune defense system, but also just for sleep and sleep is so important for your immunity, for your overall defense and mouth breathers are really, really bad at sleep.
Chad Burton: If you look into this, as you know, I’ve been looking into sleep a lot lately because it’s something I always struggle with. I’ve been on this great string of sleep lately for some of the stuff that I was talking about. But last night I got 45 minutes of sleep. One of the things that I’ve been doing to help is these nose cones, because I’m waiting to have deviated septum surgery. I can’t breathe out of my right nostril almost. I pushed my nose over years and years of wrestling and probably broke my nose a couple of times. So these nose cones have actually helped. Not the prettiest thing to look at, but it helps me breathe through my nose. And all of a sudden I was waking up without headaches and looking into it, nasal breathing is critical to a good night’s sleep compared to oral breathing, nasal breathing decreases snoring and excessive daytime sleepiness.
Chad Burton: All the rage now, if you look into this, is you have these nose cones things that help keep your nostrils open and then mouth tapes. So a lot of people are looking into this so much that they’re actually … If you go on Amazon, you can find this mouth tape. It’ll tape your mouth shut at night to force you to breathe through your nose, to have better sleep and research conducted during the previous SARS outbreak showed that nitric oxide inhibited the replication of the SARS virus. And in this study, basically nose breathing helps. It’s your first line of defense, because if you’re breathing through your mouth, you have a dry mouth. That screws up your immune system and decreases your nitric oxide. Nasal breathing is good for you, plain and simple. So look into it, because this virus is going to be around for a while and you’ve got to do everything that you can to protect yourself from it.
Chad Burton: Whether it’s start to lose weight, look at what you’re doing in terms of what you’re eating. I do an immune drink every morning from Organifi. That’s the first thing I do when I get up. And sleeping so important to all of it. So nasal breathing, elevating your mattress all comes into play when it comes to sleeping and your immune defense, and another big one that I believe in and I can’t say “Here’s the proof, here’s all these medical papers for it,” but just look into vitamin D intake, and how much vitamin D you have when it comes to fighting this stuff. All right. Higher levels of vitamin D, it’s a big issue. So make sure you’re getting enough vitamin D intake. If you’re taking extra vitamin D, you’ve got to have vitamin K to help make sure it goes to the right places, essentially.
Chad Burton: And again, I’m not a doctor. I just play one on radio. You want to do anything you can when it comes to this stuff, because I think you see that most people that get this, probably don’t even know they have it, but then some people, all of a sudden get hit with this cyto storm and everything else. And a lot of times it’s because of other preexisting health issues. So watch out, be careful with that. All right, coming back after the break, I’m going to talk about, there’s a study that we’re looking at in the office. 49% of retirees in this study could not maintain their spending. Only five years into retirement that it cuts spending because they screwed up. They didn’t have a plan or they overspent. We’ll take a quick break. We’ll be right back.
Announcer:: You’re listening to New focus on Wealth on AM 1220 KDOW.
Chad Burton: Welcome back into the show. I’m your host, chad Burton certified financial planner. You want to get your calls? Yeah. Hold the calls today. I got a guest coming up, Neuberger Berman, real estate fund manager. Consumer financial protection Bureau did a study of retirement security and financial decision making. It was a research brief that we were talking about it in our office amongst me and six other certified financial planners that we have. And it was an interesting approach to it, because they looked at this group of people that, it was around 1992 for about seven years or so. In 1992 to 2014. And they looked at this group of people and the study showed that 49% of that group of retirees could not maintain their spending after five years. Now this was pre COVID.
Chad Burton: And now retirement planning is more daunting, post pandemic. This is why we’re doing the event on July 16th, a webinar, since we can’t do an in person event with you guys anytime soon. We’re doing a webinar. It’s going to be at 6:00 PM. You can log in from home with a nice glass of wine or spirits or whatever. I don’t know what you want to drink, beer, water. That’s good too. It’s more daunting with COVID, because now we have really low interest rates. Just when you think they couldn’t get any lower. Well, here we are. There’s a ton of fed stimulus bond buying, pushes the price of the bonds up the interest rates down. And when you go into retirement, typically you’re going to have some sort of an allocation, which calls for, I talk about all the time, three years worth of portfolio withdrawals in cash, plus a portfolio that’s no more than 65% growth, 35% defensive. Defensive typically means bonds, fixed income.
Chad Burton: There’s a whole bunch of different types of bonds. And now we’re in a situation where cash and bonds are paying about a third of what they were prior to the great recession in 2007. So that’s a lower income. So the new rule of thumb is more like three, 3.5%. What that means is, is in the nineties, that 4% rule was created that said, “Hey, you’re going to retire at 65 and live till you’re like 95. If you’re able to live off of 4% of your portfolio. So if it’s a million, that’s 40 grand a year, you’ll be able to increase your withdrawal every year to keep up with inflation, you’ll have enough money with a balanced portfolio.” It’s not quite the case anymore with bonds as low as they are. Now, some of that is offset by lower inflation now than what we saw in the nineties.
Chad Burton: But you have to realize that, as a result of two rounds of massive stimulus now, and then when we did this back in 2008, in 2009, eventually we should see an inflationary environment, because things revert to the mean, and inflation tends to average closer to three, 3.5%, where the value of dollars cut in half about every 18 years or so. Here’s some of the things that affected these people, which was interesting. Those that dealt with their mortgage a little bit differently. In fact, as I was reading through this, it looked like those that either kept their very low mortgage or paid off their mortgage were able to control their spending a little bit better. And this is interesting because of the … I’ve talked about this before, where we’re telling more people than ever before.
Chad Burton: I’ve told more people in the last two years to pay off their mortgages, then go into retirement than in the previous 23 years that I was in the business. The reason why is because bond rates are so low, you used to say, “Why pay off your house? All you’re doing is giving money to the bank earlier. House is going to go up and down in value, no matter what. You lose all of the flexibility of not having that liquid amount of money and the interest on your mortgage after your tax deduction is lower than what you’re earning on your California tax free bonds or your orient tax free bonds or if you’re in Washington, your municipal bonds,” for example. That’s not necessarily the case anymore because the way the tax code works and the higher standard deduction, some people aren’t even writing off the interest on their mortgage.
Chad Burton: And if they are 15 years into a 30 year mortgage, it’s becoming mostly principal. And so then it’s a cashflow issue and you really have to sit down with your certified financial planner that will put in writing that they’re a fiduciary because in some cases it makes sense for you to pull money out of your bond portfolio, to pay off your mortgage. If you’re working with somebody that’s not a fiduciary, they’re not going to give you the proper advice, if that makes sense. They’re going to want to keep that money under management. All right. So model it with your financial advisor, confirm it with your CPA. Keep in mind that taxes will likely go up in the future. So there’s some changes there. 2026 at a minimum or the next election, potentially. Also those that took their social security early, instead of waiting to full retirement age, those were the ones that had the most trouble maintaining their spending and there’s so many things that you have to do when it comes to social security, realizing that as a couple, there’s still ways to maximize it. If you were 62, by the end of 2015, there’s still some tricks that you can do.
Chad Burton: You also need a proper withdrawal strategy because those that retired in ’92 and then went through the credit crisis 2007, October, 2007 to bottom of March of 2009. But it was 2013 before the market started to come back to even again. Those that retired without three years worth of portfolio draws in cash and enough income coming off their portfolio, those that didn’t do that properly, started selling their stocks before they had recovered and mathematically, they will never recover because they did it the wrong way. So making wise decisions with your mortgage, with your social security and especially with your withdrawal strategy is a huge, huge deal right now. It’s more important now than ever. And then also looking at some things like bond alternatives, especially if you’re a very conservative investor and you’re sitting there, you’re taking these risk tolerance questionnaires that your financial advisors coming to you saying, “Okay, well that means you could only really kind of handle 70% bonds, 30% stocks yet you barely have enough money to retire. That’s not going to get you anywhere.”
Chad Burton: So looking at a couple of bond alternatives, and a person like that, that’s when you say, “Okay, that’s too much in bonds. That’s a good idea to pay off your mortgage or maybe even downsize your home. Buy a rental property somewhere else that’s kicking off some income for us that comes with all sorts of risks as well.” So you’ve got to really carefully consider that. In my plan and my mind in the back of my head is just be able to save enough to live off of the dividends from my stocks, I’ll have a little bit of bonds, probably not a lot, income from real estate and hopefully sell some businesses at that point in time. And I won’t have to worry too much about bonds. Because I think we’re in a low interest rate environment for a long time.
Chad Burton: All right. This is why over the last several years, a lot of money has flooded into REITs, Real Estate Investment Trust. And all the REIT is, it’s a publicly traded stock, just like any other stock, but they have a different tax situation, requires them to pass on more income. It’s very tax efficient income for retirees. I will say the income is lower now than say even five, 10 years ago. Coming back after the break, I’m talking with a fund manager, a Real Estate Investment Trust Fund, a mutual fund where they go buy different REITs and side of it. And they have had stellar performance. They’re down for the year, but not down as much as the index is, that’s for sure because they made some changes when there’s some cell towers, which I’ll be at are a little bit expensive now, but stay tuned for that. We’ll take a quick break. We’ll be right back. You can find me chadburton.com. Sign up for the July 16th retirement webinar at chadburton.com.
Announcer: Now back to New Focus on Wealth on AM 1220 KDOW.
Chad Burton: Welcome back into the show. I’m your host, Chad Burton certified financial planner. If you want to find out more about me, my team, and the event that we’ve got coming up, July 16th, retirement income planning webinar, go to chadburton.com.
Chad Burton: But right now I want to talk about REITs. The Real Estate Investment Trust is a form of publicly traded stock. We’ve got a great guest. We’ve got Steve Shigekawa, managing director at Neuberger Berman. He is senior portfolio manager for the Real Estate Securities group. Prior to 2002, he was with Credential. He was an intern at Cohen and Steers. He’s been in the business for a good period of time. VA from UCLA and MBA from New York University. And I got to say that when I take a look for those that are seeing my screen, the Neuberger Berman real estate fund has had stellar performance this year. Year-to-date, they have the funds down, but if we look at the Dow Jones Real Estate ETF, which is IYR, that’s down 21.8, 6%. And RWR which is the I shares version of a read index is down 13.4%. So first of all, congratulations on the performance.
Steve Shigekawa: Thank you very much. And thanks for having me.
Chad Burton: And now let’s talk, I’m going to get into what you guys did, prior to this correction and what you’re doing now, but explain to those that don’t know what is a REIT, how are REITs different? They’re still stock, but a little bit different tax issues, right?
Steve Shigekawa: Yeah. You know, REIT were set up so that Individual investors could have ownership and exposure to commercial real estate. And it allows for investors to invest in all types of real estate, whether it be retail properties, office buildings, residential, and then many other sectors that have come to the public market, whether it’s storage, cell towers, timber lands, and as long as, in order to meet the criteria to get the tax benefits, they’re required to pay out 90% of their net income. And generally the way that we look at them is “How are they generating their revenue?” And as long as it’s coming from rental income, it’s going to be qualified income in order to get those benefits.
Chad Burton: Got it. So when you look at Real Estate Investment Trusts, if they’re required to pay out a certain percentage, what is it, 90% of their net income? Is that correct?
Steve Shigekawa: Mm-hmm (affirmative).
Chad Burton: So if that’s the case, you can’t look at a traditional price to earnings ratio on a REIT and start your fundamental analysis from there. Is that correct?
Steve Shigekawa: Yeah, that’s correct. One of the things that I think is important to look at is if you think about depreciation of assets, that’s going to be a charge to a net income. So what we try to do is look at, if you think about a building, a building could be 30 years old and you would have depreciated that asset, but in actuality or in the real world, that asset might be worth more than what it was worth. And in many cases much more than what it was worth when you first bought the asset. So what we look at is a metric called Funds from Operation, which is an add-back to depreciation then for us would be the proxy for cash flows. And so by looking at a stock price of a REIT relative to its Funds from Operation, you get a pretty good proxy of what would be a PE for a normal stock.
Chad Burton: Got it. That’s good to know. So when you look at some of those metrics across REITs these days, are they more expensive than they have been in the past? They’re right in the middle, are they cheap? They all over the place. And what do you see now?
Steve Shigekawa: Sure. Obviously because of the pandemic, we’ve seen a sell off in the REIT market and we have seen somewhat of a recovery, but I think that the difference really lies within the REIT market, looking at the different property types. So there are sectors that you would expect that have been hurt more by the events of the last several months. So think about the lodging space or regional malls when there were bans on travel and bans on large gatherings and retail locations being closed, you saw significant challenges for those sectors. Some of those sectors are trading at very attractive values.
Steve Shigekawa: If you look at the longer term metrics and the potential within those sectors, but those are the ones that have been the worst performers so far. The best performers have been sectors that have been better insulated from the COVID pandemic, but also the resulting recession that we’re in. So sectors like technology related sectors. So data centers, cell tower companies, they’ve outperformed. The industrial warehouse sectors also outperformed, and some of the residential sectors. So it really varies in terms of performance across the different property sectors. What’s encouraging to us is if you look at past cycles, REITs actually have performed well as you get through the recession and start to have a recovery in the market.
Chad Burton: So what has done well. When I think about REITs, a Real Estate Investment Trust back 15, 20 years ago when they started getting pretty popular, and it’s still a while to have them come out and be a separate sector of the S&P 500, but the income was so much higher back then. So when you’re looking at the income of REITs, is it a situation where the income is lower than it has been in the past, yet the prices have gone up? Is it relative to the interest rates on the 10 year treasury? Is it expensive? It’s so hard to get a handle on where we are with valuations of these things.
Steve Shigekawa: Sure. If you look back 10 or 15 years ago, or pre global financial crisis, you’re right income was a higher component of your total return and REIT market. And I think partially because of the low interest rates that we’ve seen over the last decade, there are many investors that look at the REIT sector or other sectors like utilities as income oriented sectors. And so, as they’ve seen the yields on their fixed income investments or their bond portfolios going down, they’ve been looking to the equity market for that added income. And so that’s been supportive of the REIT market, as investors have looked to add to their REIT exposure to get that higher income that is generated by the tax efficient structure in the REIT market. We try to remind investors that owning REITs is really owning companies that own real estate and their business is owning and operating commercial real estate.
Steve Shigekawa: And so longer term, their fundamentals are going to be driven supply and demand of real estate rental rates and the growth rate of those rental income streams and less by interest rates. So while there’s a segment of the market that looks for REITs for income, we try to remind investors that owning REITs is giving you the diversification benefits of owning commercial real estate.
Chad Burton: Got it. And when you say commercial real estate, there’s so many sectors up on the screen, just to name some of them, healthcare, manufactured housing, student housing, self storage, single family rental, a specialty in timber tech-related assets, like data centers, infrastructure, cell towers, and then the traditional mall REITs. I mean, there’s healthcare REITs. There’s all sorts of things that are out there. And that’s I think what a lot of people have questions on.
Chad Burton: So getting back to the whole income thing, is it fair to say then that as interests on bonds have come down more money has been pushed into REITs for that income. So are you paying more for those funds for operation than you remember say five or 10 years ago.
Steve Shigekawa: Yeah. I think when you, when you think about one of the metrics some people look at is, is looking at the dividend yield relative to other interests, other income levels that they can get. And so as interest rates have gone down, those yields have gone down. And that means that, people have bought into the sector and prices are higher, but keep in mind that over that same time period, you’ve seen, prior to this pandemic, 11 years of economic growth. And so you’ve seen cash flows growing as well.
Steve Shigekawa: And so that’s going to be supportive of valuation from a positive standpoint. If you think about the sectors we’re really excited about the potential to invest in different types of property sectors, like you mentioned.
Chad Burton: So what are you excited about now? Post pandemic. People talk about, “Okay, less people are going to use offices. A lot more people are going to stay at home, yet they might want to move out of the city and out of their tight apartments, out into the suburbs.” What are you guys excited about?
Steve Shigekawa: Sure. One of the main themes we’ve been investing in is technology related sectors. If you think about cloud computing and the fact that we’re all working from home, all of our kids who are going to school from home, the importance of digital infrastructure in the country was really highlighted. And so we’ve seen growth in demand for cloud computing and growth in technology. So that’s going to be supportive of that sector. You mentioned the office sector-
Chad Burton: Are you saying those things aren’t all up in the clouds? Are they sitting somewhere in a facility?
Steve Shigekawa: Yeah. If you think about all of that information, it’s going through the web, but it’s being stored in data centers. And I think that’s a sector that people don’t often think about. If you saw a data center, it’s a pretty nondescript building. It looks like a warehouse with no windows, but inside is the technology infrastructure that we all as consumers and workers rely on increasingly more and more. You mentioned the office sector and the work from home trends. We’re a little more cautious on the office market. We think that, at least in the near term, while we still have the virus, that there is going to be the challenges in terms of people working from home. And what is the game plan once we get back to normal. I think corporations have been surprised at how efficient their employees have been working from home.
Chad Burton: Let’s hold right there. I’m going to take a quick break. I want to bring you back in the next segment. Because we’re out of time, we got to take a break and we’ll go over some of your top holdings and what you guys did prior to the pandemic as well. We’ll take a quick break. We’ll be right back.
Announcer: New Focus on Wealth on AM 1220 KDOW.
Chad Burton: Back to the show. I am your host, chad Burton certified financial planner. If you want to find out more about me and my team of six other certified financial planner practitioners, need help with your financial planning, your money management, getting through retirement, dealing with volatility, how to create a retirement income. It’s all at newfocusfinancial.com. The event is live for registration for July 16th on essentially how do you retire post pandemic? We have low interest rates. We have volatility, healthcare issues, social security issues, massive stimulus that somebody is going to have to pay for. So retirement’s a little bit daunting. You’ve got to get a plan. It’s still very possible, but you’ve got to get a plan in place. So check that out. That’s newfocusfinancial.com or chadburton.com. We’ve been speaking this last segment, all about REITs Real Estate Investment Trusts with Steve Shigekawa, managing director with Neuberger Berman, senior portfolio manager for the Real Estate Securities Group.
Chad Burton: And of those that are looking at my screen right now. Again, I’d like to just point out that they’ve had phenomenal performance this year. We had a situation where REITs changed drastically going into this pandemic with social distancing and REITs. So we’ll go over this again in a minute, but it’s not just like an office building or a strip mall. It is hospitality or hotels. It’s nursing homes. It’s cell towers. It’s storing the stuff’s not in the cloud like we were talking about. It’s actually in servers, in facilities and a lot of infrastructure out there and you guys just did not drop as much. And then you recovered year-to-date. So Steve, tell us a little bit about what you guys did. How did you manage this fund to be able to essentially crush the ETS, subtract the indexes?
Steve Shigekawa: Sure. I would say if you go back to 2019, we thought that the recovery that we’ve seen was getting pretty extended. We were 11 years into recovery. We wanted to find sectors that had demand drivers that would better withstand an economic slowdown. We didn’t know that the pandemic was coming, but we wanted to position the portfolio in case there was an economic slowdown. And so that pointed us to underweight in sectors like the retail sector and the office sector. Retail, we already knew the challenges as it related to e-commerce versus brick and mortar retail. And then we had overweights in sectors like data centers and cell towers. Those sectors, if you went back 10 years ago, with less than a 2% of the market. If you look today, the data centers and cell towers are some of the largest sectors within the public read market at, almost a third of the overall market.
Steve Shigekawa: And we’ve been overweight those sectors for the past, more than a year. And so we’ve been able to benefit from those sectors that have actually been positive performers on a year to day basis. And we were able to avoid sectors that were more cyclical sectors. And so we had a very low weighting in the lodging space and early during the pandemic went to zero weighting in hotels. We were underweight shopping centers, regional malls. And so we were underweight the sectors that were most challenged. One area, healthcare is generally viewed as defensive, but obviously because of the unique situation with COVID healthcare was a sector that was rather challenging so far this year.
Chad Burton: Yeah. If you were a nursing home and had COVID in any way, shape, or form, and people started at die, that’s not good news for your stock. What do you see now though? Did those fall enough that some of these assets, even hospitality, let’s say, have they fallen enough for you guys to start dipping your feet in there?
Steve Shigekawa: We have started edging into some of the sectors that have been the most challenged. We’re not yet there on lodging. If you think about with the quarantining and the economy’s slow reopening, it’s going to be some time before people are comfortable getting on airplanes, attending large conferences. And so when we talk to the hotel companies, they still are operating where, while even most of their hotels may be open. Their occupancy levels are in the 10, 20, 30% range versus 70 or 80% prior to the pandemic. So lodging, they’re trading at big discounts, but we’re being patient, but there could be opportunities if you go kind of a post COVID world. Now on the retail segment, we know the challenges with bankruptcies and store closings that we’ve been seeing.
Steve Shigekawa: And there are certain players that we think could take advantage of opportunities coming out of this period. And so we’ve started edging into some shopping centers and even our mall positions to be a little more neutral in those sectors. And then there’s areas like the New York office market, where we’re still very cautious, but the evaluations are becoming increasingly attractive. They’re trading at near 50% discounts to the private market value. And that’s another key message we’re looking at is “What is the stock price relative to the underlying value of the buildings if they were to be sold.” So big discounts NAV are around in some of these sectors. And so we’re looking at those as areas of potential investments as we move forward.
Chad Burton: We’ve got about 45 seconds left for the spot. What about single family rentals? Because it seems that a lot of people living in these tight cities that are now allowed to work from home, maybe they can’t quite yet afford to buy a home. That’s the home builder side of things. So maybe they want to move out and they want to rent somewhere else where they’re not touching the same elevator as everybody else.
Steve Shigekawa: That’s the sector we’re very optimistic about going forward. There’s been a shortage of home residential construction over the past decade, relative output formation. You’re right. Millennials, they like the flexibility of renting. And because of COVID, the suburban markets seem to be more appealing. This is where the single family rental companies own their portfolios, largely in Sunbelt markets, largely in suburban areas.
Steve Shigekawa: The typical property is a three bedroom home in a good school district. That’s really going to be attractive to those millennials as they get to that point where they start forming families. COVID really just accelerated that move.
Chad Burton: Yeah. Right. I tend to agree. All right. Well, Hey Steve, thanks a lot for joining us. Unfortunately, we’re out of time because I could probably go another half an hour with you to ask you about some of your top holdings, if there’s changes and things like that. But we’ve got to cut it off there. Everyone thinks for listening. Please tell a friend about the show. You can find me at chadburton.com or newfocusfinancial.com, Facebook, LinkedIn, Twitter, iTunes for the podcast. It’s all there. Have a great day.