The mid-week market optimism slid away Friday, as real estate stocks — including real estate investment trusts, brokerage firms and homebuilders — fell along with the broader market.
Markets did end the week higher but today’s dip, which came despite the House and Senate approving a historic $2 trillion stimulus deal, was another signal that the coronavirus still has a grip on the economy.
Layoffs from closures of restaurants, hotels and scores of other businesses because of Covid-19 has led to millions of Americans filing for unemployment benefits.
The S&P 500 rose about 10 percent since last week’s close, but on Friday dropped 3.4 percent. The Dow Jones Industrial Average also notched a daily decline of about 4 percent, falling about 915 points.
The FTSE Nareit All REITs Index also ended the day at a loss, but barely — less than 1 percent lower. However, that index, which tracks public REITs, outperformed the S&P this week, growing over 16 percent.
Meanwhile, several major brokerages underperformed the market indices Friday: Realogy Holdings Corp. by 7.7 percent, Newmark Group by 4.7 percent, CBRE Group by 3.5 percent and Marcus & Millichap by 1.3 percent.
Among homebuilding companies, LGI Homes, Lennar Corp.,Toll Brothers and Hovnanian Enterprises also all fell Friday.
Friday’s sell-off likely stemmed in part from investors taking advantage of several days of growth — especially if they weren’t able to move funds to more defensive sectors like bonds, said Kevin Brown, an equity analyst at Morningstar.
“The losses weren’t as great as a week ago,” he said.
Some names that had been hit hard over the past several weeks, such as hotels and mall owners, rallied back this week but then were underperforming Friday, Brown noted.
For instance, Park Hotels & Resorts Inc. started the week around $7, rose to nearly $12 on Thursday, then closed the week out just under $9 — posting a daily loss of 11.5 percent. Mall owner Simon Property Group opened Monday just under $59, peaked Wednesday at almost $70, then closed Friday at just over $58.
“Those are going to be the names that are going to have the greatest volatility,” he said. “Even the tiniest change to the economic outlook could have a magnified impact on those sectors.”
After getting off to a sluggish start early this week, markets rallied on news that the White House and Senate had negotiated a stimulus bill that would provide cash to Americans and lift out major industries impacted the most by coronavirus-related closures. The Federal Reserve also implemented additional measures to boost credit.
John Kim, analyst at BMO Capital Markets, said he wouldn’t buy into the recent rally, as there likely will still be volatility ahead. While the stimulus measure was a positive step, Kim noted that jobless claims likely will rise — over 3 million were filed this week — and REITs still have headwinds to work through. Many have already withdrawn guidance, suspended dividends and drawn down on credit lines.
“All of that is in anticipation of what may be a very tumultuous time, in terms of companies’ earnings, tenants looking for rent relief, [and] tenants failing or not surviving this recession,” Kim said.
For real estate firms, the success of the bill finally hammered out Friday depends on how quickly stimulus money can get into the hands of their tenants, particularly small businesses, many of which have had to lay off scores of workers, Brown said. Questions also remain if the money they receive will be enough, and whether those layoffs are permanent.
“Hopefully, we can get back on the right track within a few quarters and continue to grow, and I think that is giving everybody a bit more comfort,” he said.
Write to Mary Diduch at md@therealdeal.com