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Commentary
Nuveen Global Cities REIT Portfolio Update
Nuveen Global Cities REIT, Inc. (GCREIT) continues to provide durable, tax efficient income for our investors by constructing and managing a defensive portfolio of high-quality real estate. GCREIT continues to be positioned well with a portfolio of assets proving their resilience, a strong balance sheet with modest leverage, consistent liquidity management, and the ability to be a buyer in today’s market.
Global transaction volumes bottomed in the first quarter of the year, with a moderate uplift in second quarter transaction volume.1 With private real estate values down from peak and with investors no longer hampered by the denominator effect,2 we expect to see more investment volume in the second half of 2024.
Additionally, the Federal Reserve’s shift in monetary policy should reduce some of the volatility in long-term yields, particularly if the U.S. avoids a recession.3 Heightened expectations for rate cuts have caused long-term rates to drift downward at the end of the second quarter of 2024 into the third quarter of 2024, with the 10-year U.S. Treasury rate falling below 4% as of early August. We believe this, in turn, should bring some stability to pricing in most sectors and lead to increased transaction activity.
What the GCREIT Portfolio Managers are targeting next?
Fundamentals remain solid in target areas like industrial, alternatives, and pockets of retail and housing, which benefit from high occupancy rates and healthy net operating income growth. 4 In turn, the high conviction investment areas for GCREIT include:
- Industrial: Consumer spending on goods, particularly through e-commerce channels, remains strong and international trade volume has improved noticeably since the end of 2023. 3 While new industrial construction has been elevated in recent years, vacancy rates are significantly lower in light industrial properties, which is a sub-sector GCREIT continues to target
- Necessity retail:We maintain high conviction in this segment of the retail market and believe the sector is poised to outperform given its healthy fundamentals. As consumers continue to require essential goods and services and seek convenience, we remain focused on retail formats which will benefit, such as grocery-anchored centers.
- Healthcare:Medical office buildings are continuing to be resilient through this cycle and demographic tailwinds remain strong as the aging population continues to drive increased demand. 4 Supply remains in check and occupancy rates are near peak levels in many markets. Additionally, the ongoing secular shift in patient visits from hospitals to outpatient care in recent decades will likely continue to benefit medical office buildings and ambulatory surgical centers.
- International real estate:Certain European and Asian-Pacific markets are showing especially attractive entry points today after compelling repricing of property values. Particular areas of interest in Asia-Pacific are driven by long-term tailwinds of demographics, such as senior housing in Japan and student-housing in Australia. In Europe, higher-yielding retail parks, as well as alternatives like student housing, self-storage and data centers will be areas of focus. In addition, chronic housing supply shortages in Europe continue to drive healthy demand growth in the sector. 5
- Alternatives:GCREIT plans to focus on both new and existing alternatives. We believe that sectors such as data centers are a compelling buy as generative AI has created a new wave of demand. However, caution must be applied to obsolescence risk as technology and power needs are fast moving, as well as pricing as the sector currently has elevated investor interest.
- Investment debt:Investment debt returns are set to benefit from “higher for longer” base interest costs over the short to medium term, boosting the appeal of core and core plus lending. We believe the upcoming vintage of loans will benefit from relatively high returns and relatively low lending risk as values have largely stabilized.
Investment Debt Recent Transaction: Austin Self-Storage
In the first quarter of 2024, GCREIT originated a floating rate mortgage which provided the financing for the acquisition of two brand new construction, Class A+, selfstorage assets surrounding Austin, TX. The interest rate is 370 bps over Secured Overnight Financing Rate, providing an attractive coupon which is accretive to returns. Additionally, the loan basis represents a deep discount to current self-storage trades and development in the area.
Austin is a target market for self-storage investment due to strong rent and population and employment growth and has benefitted from several corporate relocations in recent years.
This investment increased the overall investment debt exposure to 7.2%. GCREIT aims to grow its debt allocation in coming quarters.
Management believes Nuveen Real Estate, remains fully capable of investing and supporting all of its client portfolios and is committed to the welfare of its employees and clients. We have the benefit of the resources, planning, and strategy across Nuveen Real Estate and its parent, TIAA, a 100-year-old company with more than $1.2 trillion of assets under management as of 30 Jun 2024. TIAA’s $300 million investment into GCREIT remains a key feature, providing true co-alignment and attention from Nuveen Real Estate and its leadership team.
GCREIT’s commitment to quality, diversification and strategic portfolio construction will continue to offer investors a competitive advantage.
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1 Source: Real Capital Analytics (24Q2 data as of 02 Aug 2024).
2 Source: Bloomberg, Nuveen Real Estate Research, Nuveen Portfolio Strategy & Solutions.
3 Source: Nuveen Real Estate Research (Q2 2024).
4 Source: CoStar; Revista (Q2 2024), Nuveen Real Estate Research (August 2024).
5 Source: Nuveen Real Estate Research (July 2024).
A copy of the Nuveen Global Cities REIT, Inc. prospectus is available at www.nuveen.com/gcreit.
Important disclosures:
All portfolio data in this commentary is as of 30 Sep 2024, unless otherwise disclosed.
This material contains forward-looking statements about our business, including, in particular, statements about our plans, strategies and objectives. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. These statements include our plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond our control. Although we believe the assumptions underlying the forward-looking statements, and the forward- looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate and our actual results, performance and achievements may be materially different from that expressed or implied by these forward-looking statements. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved.
You should carefully review the “Risk Factors” section of our prospectus for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Financial professionals should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients.
Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA). Nuveen Securities, LLC, member FINRA and SIPC, is the dealer manager for the Nuveen Global Cities REIT, Inc. offering.
Risk factors:
Nuveen Global Cities REIT, Inc. is a non-listed REIT, which offers limited liquidity as compared to other products, such as publicly listed REITs. Investors in Nuveen Global Cities REIT, Inc. are not receiving publicly listed shares. An investment in Nuveen Global Cities REIT, Inc. involves a high degree of risk, including the same risks associated with an investment in real estate investments, including fluctuations in property values, higher expenses or lower expected income, currency movement risks and potential environmental liabilities. Please consider all risks carefully prior to investing in any particular strategy, including the following risks for Nuveen Global Cities REIT, Inc.:
There is no assurance that we will achieve our investment objectives.
You will not have the opportunity to evaluate our future investments before we make them, and we may not have the opportunity to evaluate or approve investments made by entities in which we invest, such as the International Affiliated Funds, which makes your investment more speculative.
Since there is no public trading market for shares of our common stock, repurchase of shares by us will likely be the only way to dispose of your shares. Our share repurchase plan provides stockholders with the opportunity to request that we repurchase their shares on a monthly basis, but we are not obligated to repurchase any shares and may choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month in our discretion. In addition, repurchases are subject to available liquidity and other significant restrictions. Further, our board of directors may modify or suspend our share repurchase plan if it deems such action to be in our best interest and the best interest of our stockholders. As a result, our shares should be considered as having only limited liquidity and at times may be illiquid.
The purchase and repurchase price for shares of our common stock is generally based on our prior month’s NAV (subject to material changes as described above) and is not based on any public trading market. While we obtain independent periodic appraisals of our properties, the appraisal of properties is inherently subjective, and our NAV may not accurately reflect the actual price at which our assets could be liquidated on any given day.
Our board of directors may also determine to terminate our share repurchase plan if required by applicable law or in connection with a transaction in which our stockholders receive liquidity for their shares of our common stock, such as a sale or merger of our company or listing of our shares on a national securities exchange.
We have no employees and are dependent on our Advisor and its affiliates to conduct our operations. Our Advisor will face conflicts of interest as a result of, among other things, the allocation of investment opportunities among us and Other Nuveen Real Estate Accounts, the allocation of time of investment professionals and the fees that we pay to our Advisor.
We cannot guarantee that we will make distributions, and if we do we may fund such distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings, return of capital or offering proceeds, and we have no limits on the amounts we may pay from such sources.
This is a “best efforts” offering. If we are not able to raise a substantial amount of capital in the near term, our ability to achieve our investment objectives could be adversely affected.
There are limits on the ownership and transferability of our shares
If we fail to qualify as a REIT and no relief provisions apply, our NAV and cash available for distribution to our stockholders could materially decrease.
Our investments in International Affiliated Funds may be subject to currency, inflation or other governmental and regulatory risks specific to the countries in which the International Affiliated Funds operate and own assets.
The defined terms have the meanings assigned to them in the prospectus.
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