Podcast host: David Auerbach, Chief Investment Officer, Hoya Capital

‍Guest: Ryan Dobratz, Portfolio Manager, Third Avenue Real Estate Value (TAREX)

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Timestamps:

• 00:01:31 to 00:04:08 Third Avenue heritage and strategy 
• 00:09:37 to 00:12:39 Process, active share, and shadow portfolio
• 00:13:46 to 00:17:57 Rates, CPI shelter, and the re‑allocation case for REITs 
• 00:28:36 to 00:29:52 Life science in Cambridge and how Third Avenue is approaching it‍
• 00:30:10 to 00:35:01 Divergence in housing, affordability, and the AMH thesis
• 00:46:47 to 00:51:13 U.K. opportunities and Prologis as a quality compounder
• 00:57:42 - 01:00:07 What to prioritize now: balance sheets and pricing power

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Episode Overview:

Third Avenue Real Estate Value Portfolio Manager Ryan Dobratz joined Hoya Capital CIO David Auerbach for a candid discussion on the real estate landscape. Ryan covers how Third Avenue’s value discipline applies today, why focusing on well‑capitalized businesses matters more as refinancing costs reset higher amid more elevated rates, and where dislocations are opening up attractive pockets within both the U.S. and the U.K.

Ryan also explains the team’s flexible, research‑driven approach across REITs, real estate operating companies, and real‑estate‑related businesses, and shares how that flexibility expands the opportunity set well beyond the passive indexes.

Highlights from Ryan’s conversations include:

Third Avenue’s approach, in brief:

• Third Avenue’s heritage and discipline. Founded by Marty Whitman, Third Avenue looks for securities trading well below net-asset value, prioritizes strong balance sheets, and aligns with owner‑operators that compound value over time.
• Flexible mandate. The team invests across REITs, REOCs/C‑corps, and real‑estate‑related businesses, and can invest across the capital structure. This broadens the investable universe by roughly 2.5 to 3 times versus passive real estate indexes.
• Active and concentrated. About 30 holdings, with roughly 50% of capital in the top 10 positions and 90%+ active share, supported by a repeatable process and a shadow portfolio for names they like at lower prices.
• Long‑term focus. Since inception in 1998, the Real Estate Value strategy has delivered 9%+ annualized returns, with a focus on capital appreciation as the primary driver of total return.

Rates, inflation, and the setup for listed real estate:

• Shelter is distorting the consumer price index (“CPI”). The shelter component of CPI is lagging real‑time conditions. Ryan notes that if shelter were closer to 2% rather than nearly 4%, headline CPI could be about 100 bps lower than reported.
• Policy remains restrictive. With fed funds near 4% and alternative inflation measures closer to 2%, Ryan expects the policy rate to move lower over the next 3 to 9 months, which is constructive for real estate.
• Cash on the sidelines. Money market balances near $8 trillion are a potential source of re‑allocation as short‑rate yields fall. At 4%+ dividend yields and compelling valuations, listed real estate screens attractive on both absolute and relative bases.
• Valuation gap. On a look‑through basis, Third Avenue tracks a long‑run high‑single‑digit average discount to NAV. Today the basket is closer to a ~20% discount, which Ryan views as a setup for both income and capital appreciation as conditions normalize.

Housing, affordability, and the single‑family rental theme:

• Divergence is the rule. Across geographies and property types, fundamentals vary widely. Builders are using rate buy‑downs to support new‑home volumes, while existing home sales are near 25‑year lows on a per‑capita basis.
• Austin as a case study. Office vacancy has pushed above 20%, while new supply on the residential side has moderated or reduced rents over the last 12–18 months.
• Ryan highlights AMH for three reasons, Balance sheet strength, a shift from secured facilities to unsecured debt, and a scaled build‑for‑rent platform with 6.5–7.0% development yields. AMH is now a top‑50 U.S. homebuilder and continues to see strong tenant demand and high occupancy.

International value in the U.K.:

• Ryan sees compelling discounts in the U.K., especially in London and Southeast England, where supply is more constrained. Many high‑quality platforms trade at 35–40% discounts to NAV under IFRS reporting, which reappraises portfolios semi‑annually.
• He cites Big Yellow (self‑storage), Unite Group (student accommodation), and Segro (industrial across the U.K. and Europe) as examples. A very active private market has been a consistent catalyst when public markets fail to close the discount.

Industrial tailwinds and an underappreciated upside:

• Prologis (PLD) remains a core example of quality plus optionality. Ryan notes:
• Roughly $1 billion of loss‑to‑lease still to capture as below‑market leases roll.
• Improving fundamentals as supply moderates, reshoring takes hold, and inventories stay structurally higher.
• A growing data center adjacency, where Prologis has been building internal capability and pursuing a multi‑gigawatt pipeline, supported by team additions.

The bottom line from Ryan Dobratz:

• The real estate sector is better capitalized and better managed than 15 years ago, yet real estate remains capital‑intensive.
• In a higher‑for‑longer world than the last cycle, Ryan emphasizes businesses with low leverage and pricing power that can protect cash flow and dividend growth through refinancing cycles.

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About Ryan Dobratz

Ryan Dobratz, CFA is a Portfolio Manager for Third Avenue’s Real Estate Value strategy. He has invested through multiple cycles using Third Avenue’s distinct approach to listed real estate, which seeks out value-oriented opportunities through investments in the securities of well-capitalized and strategic real estate enterprises on a global basis. Ryan has been with Third Avenue’s real estate team for roughly two decades and is based in Austin, TX.

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About Third Avenue Real Estate Value (TAREX)

Third Avenue Real Estate Value is a global, high‑conviction strategy investing across REITs, REOCs/C‑corps, and real‑estate‑related businesses. The team seeks well‑capitalized companies trading at discounts to net-asset value, with an emphasis on total return driven by capital appreciation. The portfolio is concentrated around best ideas and maintains high active share.

For standardized performance, holdings, and important disclosures, please visit the Fund page on thirdave.com.