Special Report: The Top 3 REITs for the 2020s

Can you name the five biggest cities in America today? How about the five biggest cities in America 100 years ago? The degree of difference between the two lists might surprise you. 

In 1921, Detroit and Cleveland were among the five biggest U.S. cities. Today, neither is even in the top 20. Conversely, two of today’s five biggest U.S. cities — Houston and Phoenix — weren’t even in the top 20 in 1921.  

Americans move around a lot more than we realize, and subtle migratory and demographic trends can make or break specific real estate markets. 

As we move through the second year of the 2020s, Wealth Daily’s economists see three major trends shaping U.S. real estate over the course of the decade. 

The first concerns which cities will be the Phoenixes or Houstons of tomorrow… 

Out of the 24-Hour Cities and Into the 18-Hour Cities 

Below are two graphs of two cities’ population growth rates since the 1990s. The first shows Nashville, which has maintained an annual growth rate of at least 2% since 1990 and has often approached 3% growth. 

Nashville Growth

Source: Macrotrends.net 

The second graph shows New York City, which saw a meager 1% annual growth during its 1990s “boom,” stagnation throughout the 2000s, and then a population decline following the late 2010s. 

New York City stagnation

Source: Macrotrends.net 

 

These are just two examples of the accelerating shift away from the overpriced “24-hour cities,” or the “Big Six” cities of New York, Los Angeles, Chicago, San Francisco, Boston, and Washington, D.C. Instead, there's movement toward more affordable and fast-growing “18-hour cities” like Nashville, Denver, and Charleston. 

Eighteen-hour cities are typically medium-sized cities that are smaller and have fewer amenities than the Big Six markets listed above. They have much lower costs of living, much higher population growth, and economic prospects that make them potential 24-hour cities. 

The shift toward 18-hour cities actually predates COVID-19, but the pandemic has accelerated it significantly. In recent months, dozens of large companies, ranging from JPMorgan Chase to Novartis to Twitter, have announced that they will make their remote-work arrangements permanent, and more companies are expected to follow. 

This effectively eliminates the biggest incentive to move to expensive 24-hour cities: the lucrative job market. If you can log into your San Francisco-based software engineering job or New York-based finance job from anywhere, why not do it from Boise, Idaho, and cut your rent in half?

Independence Realty Trust (NYSE: IRT) is a real estate investment trust (REIT) that specializes in buying and renovating multifamily apartment properties in 18-hour cities, including Atlanta, Memphis, and Raleigh. 

IRT Chart

The trust is profitable on an earnings basis and has achieved steady revenue growth in recent years. And as you can see above, investors have started to take notice… 

The Graying of America 

For years — decades even — Americans have heard about the transformative impact baby boomers had on the U.S. economy.

Today, nearly half of the generation is retired, creating a significant acceleration toward retirement during this pandemic. Over the next decade, one of the country's most significant demographic trends will be the boomers’ transition from middle age into old age

As the chart below shows, America’s 65-and-older population will double by 2030 — relative to its 2000 levels — and will rise from 15% of the country’s population to more than 21%. 

US Population by Cohorts

Source: https://www.chmura.com/blog/2015/october/06/the-graying-of-america 

 

In recent months, many institutional investors, including Green Street Advisors, have publicly stated that they see an investment opportunity in senior housing. And one REIT stands head and shoulders above the rest...

Welltower (NYSE: WELL) is the world’s largest healthcare REIT, with more than 1,400 properties in the U.S., UK, and Canada. 

As mentioned previously, it’s popular among large institutional investors like banks, as 92% of its shares are owned by such investors. The graph below shows the company's stable stock price growth in the last year...

US Population by Cohorts

The REIT is also profitable on an earnings basis and has a bright post-COVID future.

From State-Level Marijuana Legalization to Federal Legalization 

Ten years ago, the possession of marijuana — even small, personal-use amounts — was a criminal offense punishable by jail time in every U.S. state and territory. 

Depending on how old you are and how familiar you are with the marijuana industry, that might seem obvious — or it might seem insane. 

After all, the graph below shows that today 17 states, plus Guam and the District of Columbia, have legalized marijuana for adult recreational use, and all but a handful of states have legalized it for medical use. (In the graph, blue indicates recreational legalization, green indicates medical legalization, and “D” indicates decriminalization or reduced enforcement).  

Legalized States

Source: https://en.wikipedia.org/wiki/Cannabis_in_the_United_States#/media/File:Map_of_US_state_cannabis_laws.svg 

 

Today, the vast majority of Americans have access to medical marijuana, and more than half can buy it at a store. 

Federal legalization may not be here yet, but it’s coming. Since 2014, Congress has continuously renewed the Rohrabacher-Farr amendment, a bipartisan bill that prohibits the federal government from spending funds to interfere with state medical marijuana laws. This amendment implies that, on some level, Congress understands that marijuana prohibition is wrong. 

In a recent Future of Everything interview series, an overwhelming majority of journalists, business people, and analysts predicted that federal legalization of marijuana will occur before 2030. 

With this in mind, investors would be wise to pick up a broad-based marijuana fund, and there’s one real estate investment trust that is perfect for this purpose… 

Innovative Industrial Properties (NYSE: IIPR) is a REIT that specializes in leasing facilities to medical marijuana businesses. It controls a portfolio of 63 properties across 16 states, containing more than 5 million square feet of space. 

IIPR has currently leased more than 99% of its portfolio, with a weighted average 16-year lease term, making it a great buy-and-hold play in the volatile marijuana industry.

IIPR Chart

The discrepancy between the trust’s trailing and forward price-to-earnings (P/E) ratio implies that its profits could double in the year ahead — and it wouldn’t be the first time. IIPR has recorded triple-digit earnings and revenue growth in the last year.

Wealth Daily Watchlist: Independence Realty Trust (NYSE: IRT), Welltower (NYSE: WELL), and Innovative Industrial Properties (NYSE: IIPR). 

What Will America Look Like in 2040? 

In this section of the report, we could predict various future events that could change the course of history between 2030 and 2040. But we won’t because, at a certain point, such vague predictions become irresponsible. 

After all, consider how unforeseeable many of the last decade’s trends were back in the 2000s. During the Bush administration, the notion that in 10 years most Americans would be able to buy marijuana at a store sounded like a pipe dream, and “COVID” was a meaningless set of nonsense syllables. 

Investors are better off retaining the advice of expert trend watchers rather than trying to predict the future themselves, and Briton Ryle from The Wealth Advisory is one such trend watcher. His subscribers have been profiting from his astute economic observations and investment recommendations for years. Click here to learn how you can receive them. 


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