Profitable enterprises can be poor investments if you pay too much for them. That’s exactly what is happening now with publicly traded REITs.
This development was forecasted in an article I wrote last February. With assistance from investment firm Research Affiliates, the article concluded that REITs would produce returns between 0% and 2% annualized on an inflation-adjusted basis over the next decade.
A representative from NAREIT, a lobbying firm for the REIT industry, took me to task in a letter, saying there were just two periods in history when REITs had done as badly as I had forecasted. Moreover, the letter pointed out, there wasn’t much reason to think that REITs would repeat those gloomy periods now.