A listener who invests in fixed-income Real Estate Investment Trusts reported that returns have not been positive this year. His concern is with the wave of corporate defaults, which could further harm the funds' earnings.
Fixed-income Real Estate Investment Trusts primarily invest in CRIs, an acronym for real estate receivables certificates. Although these securities are backed by real estate market operations, they are subject to the issuer's credit risk. If the company that issued the CRI has problems and renegotiates the debt, the real estate fund will be affected.
Additionally, CRIs are subject to mark-to-market valuation, just like Treasury bonds. A significant part of the explanation for the not-so-positive performance of fixed-income real estate funds this year is related to this mark-to-market valuation, rather than to default itself.
The current economic context shows that, with the rise in interest rates, there has been a depreciation of these securities, which largely explains the decline in earnings for investors in fixed-income funds.
