REIT Values Are Hard to See Sometimes

Real estate investment trusts have earned a relatively clean bill of health in 2026, so far. 

After a prolonged period of underperformance, the investment vehicles for publicly traded real estate — widely known as REITs — are finally outperforming the S&P 500, with year-to-date total returns outpacing the index by more than 5 percentage points as of late June. But, despite the recent rebound, many REIT execs still don’t think the market has truly captured their value. 

Matt DiLiberto, chief financial officer at the New York City-based office titan SL Green, is among them.

SL Green is having a banner year, benefiting from New York City’s record-high rents and limited vacancy among the company’s Class A office assets. Despite this, the company calculates that its stock price sits at a discount to the total value of its buildings — although SL Green’s calculations and those of analysts disagree on exactly how wide that gap stretches.

“I really think it comes down to the inherent difference in how public investors trade — or invest in stocks, but I’ll call it trading because it’s not really investing — and how private market investors truly invest directly in real estate,” DiLiberto said. “It’s down to one thing: What is your investment horizon?”

Those earnings-focused investors represent a growing share of REIT stock ownership, tilting the scales further toward near returns. Not to mention, the investment world got pretty distracted by the artificial intelligence boom in 2025.

“If you’re trying to sell a 10- to 15-year investment vehicle to somebody who is trying to make a buck in three to six months, inherently there’s going to be a mismatch,” DiLiberto said.

Whether the cause of the mismatch is interest rate fluctuations or property fundamentals, the industry and its investors agree on one thing: REIT values are an increasingly tough nut to crack.

A REIT offers anyone the chance to be a passive investor in real estate via the stock market as opposed to investing directly in the properties themselves. They present investors with two prices at once. On one hand, there’s the share price. On the other, there’s the value the market thinks the REIT’s brick-and-mortar assets, whether it be Vornado’s office towers or Prologis’ distribution facilities, are worth, which largely comes from appraisals. The gap between the two prices is known as a discount or a premium to net asset value, and it is the source of REITs’ continued frustration.

For several years now, public REITs’ broadly strong balance sheets have been juxtaposed with lagging stock prices, while private real estate values have towered above their publicly traded counterparts for one of the longest stretches in decades, according to the trade group National Association of Real Estate Investment Trusts (Nareit).

Things are turning a corner this year, however. The old industry adage of “rates up, REITs down” isn’t playing out neatly anymore. The rate hike-induced fever that sent the valuations of REITs plummeting in 2022 has broken, albeit unevenly. 

The story of REITs’ outperformance in 2026 is a tale, in part, of sector diversification. 

“It’s not just one sector that’s dominating, but it’s happening in a bunch of different pockets of the REIT market,” said Peter Zabierek, senior portfolio manager at investment adviser Easterly Ranger. 

Zabierek has watched today’s REIT market depart from the old guard — or as he puts it, “your father’s REIT market” — that was made up of retail, industrial, office and multifamily. Today, he said, office buildings account for roughly 3 percent of the REIT market index.

The new kids in town, like data center REITs, self-storage REITs and senior housing REITs, are making the biggest waves.

“All of these are property types that became resident in the REIT market over the past decade and a half or so, to the point where two-thirds of the equity market cap of REITs right now, are outside of the major four food groups,” Zabierek said.

A substantial cohort of REITs are currently up more than 20 percent year-to-date, according to David Auerbach, chief investment officer at Hoya Capital. That collection of emerging and value-based comeback sectors includes data centers, regional malls, medical offices, self-storage and senior housing.

Data center REITs are having an especially good year, up 27 percent, alongside a welcome rally for hotel and lodging, at nearly 40 percent, according to Auerbach’s calculations. Senior housing has the best growth story of them all, with Welltower leading the pack of large premiums to net asset value. Industrial and office, too, are up slightly, while residential remains a weak spot. Multifamily remains in the doghouse, but is improving. 

The collection of sector-specific upticks charted by analysts has played out in defiance of stubbornly high interest rates. 

A wave of 10 mergers and acquisitions took place within the REIT world between January and May, according to Hoya Capital data, including AvalonBay’s $35 billion merger with Equity Residential and NSA Storage’s pending $10.5 billion all-stock merger with Public Storage. 

The public-to-public deals that have taken place over the past few years are largely all-stock transactions that took advantage of current discounts, said Scott Robinson, professor and director of the REIT Center at New York University’s Schack Institute of Real Estate.

“When you’re seeing a market regime where M&A deals are being done in all stock, that’s telegraphing to investors that the market, by and large, is undervalued,” Robinson said. 

Of the 10 acquisitions reported this year, six involved a private equity firm buying a public REIT. The go-private trend has persisted for several years now, Zabierek said.

“I don’t want to call it a throw-in-the-towel moment, but a lot of them have kind of intimated that it was just too hard,” said Zabierek. “It would have taken too long to get to the size that they thought they deserved, so they took an opportunity to sell to an institution or private equity.” 

All this M&A activity, paired with fluctuating stock market trends and the gaps between specific sectors, complicate the task of valuing the current REIT market as a whole.

“A data center REIT, a senior housing REIT, an apartment REIT and an office REIT should not be valued using the same mental model,” Auerbach said. “They all have their little nuances.” 

Taking the vital signs of REITs requires a diverse set of diagnostic tools, with four forces driving nearly every premium and discount in the sector. The first key driver is market timing and measurement. 

Private real estate values have barely budged since 2022, when interest rates spiked and sales slowed. Thin transaction volume over time results in poor price discovery, leading to the enduring gap between the interconnected worlds of public market pricing and private market appraisals. When it comes to REITs, the continually repriced public market tends to overshoot the upside and the downside of economic upheavals. As a result, REITs took it on the chin back in 2022.

When it comes to measuring REITs, Michael Knott, managing director and head of U.S. REIT research at research platform Green Street, sees valuations as a Venn diagram with two overlapping circles. In one circle, there’s the estimated value of the real estate, or the net asset value, in which liabilities are subtracted out. In the other circle, there’s the stock prices, and all the metrics that go with them, like earnings, earnings growth, multiples and yields. Common to both circles is the measure of how much money the real estate earns, known as the yield. As the REIT industry has grown, now taking up more than 30 slots in the S&P 500, so has the market’s emphasis on earnings, Knott said.

“Ultimately these are more yield-oriented companies, because of their tax structure where they pay out most of their taxable income and dividends,” Knott said. “They can’t retain a whole lot of capital if they want to grow, they have to raise new equity, and so they’re not Nvidia. They’re capital-intensive businesses who have to continually come back to the market for more capital, which can be a challenge.”

The next driver — rates — have received a large share of the blame for REIT stock prices’ broad departure from real estate values.

The adage “rates up, REITs down” rang true between 2023 and 2025, when REITs traded almost one-for-one in line with interest rates, according to Auerbach. That’s changing, however, as certain REIT sectors operate more independently from rate cycles.

“We think that the rate correlation has been weakening since investors are shifting more away from duration math back to actual earnings math,” Auerbach said. “And the management teams at these REITs have been operating in a high, prolonged environment for quite some time, so they’re done waiting for the Federal Reserve to cut rates.”

Instead, REITs are turning to asset sales, capital recycling, joint ventures, private capital partnerships, share buybacks and M&A as a way to close the gap.

The third vehicle of price dislocation is the REIT itself. 

In private real estate investment, Zabierek explained, “a private owner gets to imagine a higher and better use,” while the passive, fractional investors in REITs have to carefully underwrite and trust the management team’s allocation decisions and ability to extract value from their buildings. A REIT’s management, strategy, assets, catalysts and valuation all have to be taken into account.

Yet the consistent outperformance that investors seek can be hard for REITs to functionally provide.

Kevin Brown, senior equity analyst at Morningstar, points out that Prologis’ industrial prowess earned it explosive growth between 2022 and 2025. But when that pandemic-era momentum decelerated, investors began to pull money out. 

“It’s simply a matter of, is your outlook improving going forward, or is your output decelerating going forward?” Brown said. “Your stock can underperform because either you go from average to low growth, or it could be you’re underperforming because you go from high to average growth. Either way, that leads you to underperform.”

Welltower sits on the other side of the coin. After negative growth in 2022 and 2022, the senior housing REIT stabilized and entered a multiyear acceleration phase. The acceleration got investors’ attention, earning it a flood of capital and large premiums to its net asset value.

“A lot more people can access the market, not just a limited few,” said Alexander Goldfarb, senior REIT analyst and managing director at financial services firm Piper Sandler. “The downside to that is people have high expectations, and they express those expectations almost daily with their trading. That adds a lot of stress to portfolio managers who are investing in long-term assets, but sometimes the incremental buyer is a short-term buyer.”

Finally, and crucially, the real estate itself, and sentiments surrounding those assets, can lead to mismatches in pricing. Stock values can serve as a doubt meter about a given company’s portfolio, but that doubt isn’t always earned, or easily assuaged, even with the best balance sheets.

“You look at what’s going on in New York [office] right now, there is a very good-looking fundamental setup from a supply and demand standpoint, but it’s taking a while for the REIT investors to appreciate the direction of the market,” Zabierek said. “Sometimes that takes a long time, when you’ve had office out of favor for as long as it has been. It takes a while for that sentiment to change, and sentiment does have an effect on these valuations.”

It’s not as though investors are ignorant of the value of assets, Goldfarb added.

“But it’s in the context of a public company, and where investors want to allocate capital across the different REITs, and which REITs have an exciting story or not,” Goldfarb said. 

Based on the 2026 outperformance of REITs, it’s possible that investors are beginning to look past the simple macros toward fundamentals, asset sectors and company quality, but some argue that they’re still not looking hard enough. 

Emily Davis can be reached at edavis@commercialobserver.com.