David Toti, Colliers Securities, Senior Research Analyst, REITs
David Toti joined Colliers Securities as Senior Research Analyst in January 2021 to expand coverage in the REIT space. A long-time real estate professional, Mr. Toti spent nearly 20 years on sell-side REIT equity research teams for a variety of firms, including Lehman Brothers, Citi, FBR, Cantor Fitzgerald and BB&T.
Before Wall Street, David Toti was a design project manager for a leading architectural design firm. Mr. Toti is a graduate of Syracuse University, and also holds a Master’s in Business Administration in Real Estate from the University of Wisconsin-Madison.
In this 2,978 word interview, exclusively in the Wall Street Transcript, David Toti details his real estate investing methodology and reveals some top portfolio picks for 2021.
“The securities firm is a relatively small division of Colliers International, and Colliers is largely, as you said, a commercial real estate brokerage.
There are many other businesses wrapped around that — a variety of related services, management, valuation, appraisal, and so forth. The securities business, which is based in Minneapolis, is relatively small; there are probably a dozen analysts, who are largely tech and health care focused.
Real estate was an important mandate for the firm, given our ability to stitch some of the various Colliers units to the securities business, and vice versa — to begin to interconnect the businesses and the verticals and develop synergies, if you will.
That’s a specific experience that I’ve had in the past at a prior firm, which is why I believe Colliers reached out to me, and also why I accepted the role. I thought it was an interesting mandate and a rare opportunity.
For a REIT analyst, it’s basically like having a gold mine of data in your pocket, because of the sheer volume, breadth and depth of market data and market intelligence.
We effectively have eyes and ears all over the world in different markets and different asset classes. So for me, instead of going through the usual data vendors that everyone uses, we have an incredible amount of market knowledge that helps us produce more accurate, more timely, and more proprietary real estate research.
I have also long focused on an unusual quant approach within the space. The concepts, experience and implementation ability are assets I brought to Colliers; when married to the Colliers platform, their value will be materially amplified.
The bundle of predictive valuation models essentially run off of large pools of market data to forecast real estate asset values, market conditions and REIT values in the context of an assumed macroeconomic environment.
I’m excited to weave all of these things together. It is always a challenge to produce a unique product in the space, and as a result, there’s a lot of commoditized “me-too” research proliferating.
It’s hard to develop a product for clients that they haven’t seen, that they want but can’t source, and I struggled for a long time to discover a performance-based niche with a supply and demand imbalance.
To add the Colliers brand and Colliers resources to the process will produce a truly powerful product, in theory, so I am quite excited about what’s coming over the next couple of months.”
David Toti is not as sanguine about the real estate stock sector as some of his peers:
“…Going into the pandemic, many office and retail assets were highly occupied, and priced to perfection — many assets are trading with remarkable prices and ultra low cap rates, historically low cap rates, and basically no risk premium — and lo and behold, risk appears.
So the value impact to those asset classes is yet to be determined. Transaction activity has been very limited as well, so one can’t point to that, either.
But I think for the short lease — self-storage, apartments, some segments of health care — the recovery is appearing by way of rents, which have renewed and are pricing on a new rate basis.
Overall, portfolio occupancies have remained stable. A few tricky issues to watch within the REIT space might include expense pressure, as the conversation will not move off of inflation and cost inflation.
The REITs are seeing expenses grow anywhere from 5% to 8%. I’ve never seen that in my 20 years covering the space, these kinds of remarkable growth rates, and they don’t really have that much pricing power at the top line yet.
So it’s to be determined if they can really fight inflation in the near term. I suspect they will, especially for the shorter lease REITs, where there are only limited supply issues.
The REITs are ultimately rate-sensitive instruments, first and foremost, and if we have the U.S. Treasury bouncing up at a historically rapid pace that could drive up borrowing costs, coupled with inflationary pressures that could erode margins — I remain a little cautious at the margins.
It’s nice to paint a happy story and say, “The world’s coming back, everything’s getting back to normal,” but we don’t know the effects of all this liquidity, all this government stimulus, the rapid rise in the Treasury, and the sudden appearance of inflation, which is only just beginning to play out.
So there are a lot of question marks around interest rates and the REITs especially, because generally as rates move up, the REITs — especially the longer leases — typically move inversely to those rates, and they could lose value as those rates move up, so that’s what we watch for.”
This leads David Toti to just a handful of stock recommendations:
“Camden Property Trust (NYSE:CPT) is one of our recommendations. IRT (NYSE:IRT) is another one that we like.
As well, a couple of health care names that we point to, and those typically have higher exposure to private pay segments, because we think there will be more growth as things return to normal there.
So we like the shorter leases, we like when there’s pricing power visible, we like the non-core markets, the Sunbelts and Texas and so forth.
It’s a trade that’s been working for a while, but I don’t think there’s any reason to get off of it at the moment, it’s just a matter of finding a stock that’s palatable from a pricing perspective.
A lot of these stocks are bid up pretty high, so the thesis might sound great, but then when you look at the pricing, you say, “Well, the upside is somewhat limited.”
Get the complete background on these picks and more by reading the entire 2,978 word interview with David Toti, exclusively in the Wall Street Transcript.
David Toti
Senior Research Analyst
Colliers Securities
(612) 376-4000
www.colliers.com
email: david.toti@colliers.com
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