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## State of the REIT Market 

REIT stocks have outperformed the S&P and almost all other financial indices over every measuring period for the last ten years. (18) Vornado’ stock has also done well. The following table presents the data. 

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In real estate, the private market has driven cap rates (19) down to the 5s and 6s, leading the public market. Cap rates are sticky—they may bounce a bit, but I believe they will stay lower for longer than people seem to think. We won’t see 8% cap rates again for better properties for years. This swing to lower cap rates is a secular phenom- enon that will survive a bounce in interest rates. 

It’s obvious that for a long time now we have been in a worldwide period of easy money. The universal consensus is that America is recovering, inflation is in the wind and 

(18) I admit this is a little REIT propaganda from yours truly the just retired Chairman of NAREIT. 

rates are going up. I guess I sort of agree, but I still feel that easy money is a secular phenomenon. In any event, in the current environment, we will run the business defen- sively with respect to rates. 

As I write this letter, REIT stocks are bouncing. The logic seems to be that stronger jobs reports point to a stronger economy, which points to higher interest rates, which points to declining real estate values. I don’t get it. History clearly shows that a dose of inflation and growth has been good to great for rents and the value of existing real estate. And while I don’t wish for it, higher rates, if they were to happen, will take out new-builds as competi- tion for our in-place real estate. My guess is that REIT stocks just got a little ahead of themselves. 

Mike and I think that our great assets, financial might, brand recognition, and deal flow are important to our future success. While we have become a large company, we believe we still can achieve a good rate of growth. We continue to think that simplicity is a virtue and on-the- fairway investments (mainstream) are our franchise. Perhaps we should have been even more aggressive over the past couple of years—we will see. In the current environment, while it is difficult to buy assets, we have and we will continue to find our opportunities. And, our best business today seems to be working our assets while we watch the market mark them up. 

(19) Market value of real estate is generally determined by the quotient of the asset’s EBITDA and the market determined capitalization rate (cap rate). Simply a cap rate is the yield on the investment. 

