New York City’s real estate market includes some of the most high-profile properties in the world. It is also one of the most expensive in which to invest (and why so many residents are renters). If you can’t afford to invest directly in New York City’s real estate market there are several publicly traded real estate investment trusts (REITs) that can give you exposure.
REITs are essentially real estate companies that invest directly in real estate through properties or mortgages. The Internal Revenue Service requires REITs to pay the majority of taxable profits in dividends to shareholders. Companies with REIT status do not pay corporate income tax.
You can buy and sell shares of REITs. Like stocks they trade on an exchange. There are three publicly-traded REITs that focus mainly on New York City real estate. (For more, see: 3 Types of REIT for Your Portfolio.)
SL Green Realty Corp. (SLG) maintains that it's New York City’s largest office landlord. It primarily focuses on acquiring, developing and managing commercial properties in Manhattan. Its portfolio holds ownership interests in 96 buildings in Manhattan. SL Green also holds ownership interests in 35 buildings in Brooklyn, Long Island, Westchester County, Connecticut and New Jersey. (For more, see: With SL Green Realty, Focus is Clearly Not an Issue.)
One of its trophy properties includes 220 East 42nd Street, which is known as The News Building. Its lobby houses the iconic rotating globe featured in the 1950s Superman television series.
Financial services firm Citigroup Inc. (C), meanwhile, is one of SL Green’s high profile tenants. Its Global Wealth Management and Global Trading divisions are headquartered in a two building campus located at 388-90 Greenwich Street in Tribeca.
Shares of SL Green trade on the NYSE. Its stock price has ranged between $89.05 - $113.08 in the last year.
Empire State Realty Trust
The aptly named Empire State Realty Trust Inc. (ESRT) boasts the Empire State Building among properties in its portfolio. Altogether its portfolio includes 14 office properties and six retail properties in Manhattan and the greater New York City metropolitan area. (For related reading, see: Finally Some Bullish News for Commercial Real Estate.)
Nine of the office properties, including the Empire State Building, are in Midtown Manhattan. The remainder are in Westchester County, New York and Fairfield County, Connecticut. The six retail properties are located in Manhattan and Westport, Conn.
The locations of Empire State Realty Trust’s Manhattan office and retail properties include Union Square, Grand Central, Columbus Circle and several properties along Broadway.
Empire State Realty Trust’s shares also trade on the NYSE. Its stock price has ranged between $13.20 - 17.34 in the last year.
New York REIT
American Realty Capital's New York REIT Inc. (NYRT) became the latest entrant in the New York City REIT universe when it debuted on the NYSE in April of this year. It acquires income-producing commercial real estate and owns stakes in 22 properties, which are predominantly office and retail. (For more, see: How to Analyze REITs.)
Properties in its portfolio include Worldwide Plaza in Midtown and the Twitter Building, located in Manhattan’s Silicon Alley.
Stay tuned as the future of this REIT unfolds. In October 2014, American Realty Capital announced that it had hired Barclays Capital and RCS Capital as financial advisors to evaluate strategic options to boost shareholder value. Empire State Realty Trust has expressed an interest in acquiring New York REIT, according to reports.
"It should come as no surprise that management and the board of directors are disappointed and believe that the market is undervaluing our shares," Michael Happel, President of the New York REIT, said in the announcement. "In light of the inquiries we have received involving potential strategic opportunities, our board felt strongly that we should engage financial advisors to provide fully-informed, objective advice to assist management in assessing all of our options," he added.
Shares have ranged between $9.51 - $12.32 since the REIT started trading.
Risks and Rewards
Because the three REITs detailed above are publicly traded they are highly liquid investments. Remember, you can buy and sell their shares like stocks. They also provide diversification, potential capital appreciation and an affordable way to for investors to gain exposure to New York City’s commercial real estate market.
Another benefit to investing in REITs is that they generate dividend income for investors. They are required to distribute at least 90% of taxable income each year to shareholders through dividends.
Like any investment there are risks involved in investing in REITs. Returns are not guaranteed.
REITs are also unique as rising interest rates can affect their returns. To make acquisitions REITs rely on debt or borrowed money. When interest rates rise, the cost of borrowing does as well, cutting into profits.
The Bottom Line
New York City has three publicly traded REITs focusing on its commercial real estate market. They offer liquidity, diversification and an affordable way for investors to gain exposure to one of the most dynamic real estate markets in the world. They also pay shareholders dividends and offer potential capital appreciation for moderate to long-term investors. (For more, see: Residential, Healthcare and Office REITs.)