How the UK's exit benefits US REITs

They are considered safe, and they offer yield. No wonder the stocks of real estate investment trusts ran in the opposite direction of the Brexit-bashed U.S. stock market Friday.

Last fall, interest in REITs had begun to wane, as expectations of higher interest rates outweighed solid fundamentals in the real estate market. Now REITs, and the real estate underlying them, are the power play for the anxious investor.

"Anything that is going to drive the 10 year lower is a positive for REITs. Three-and-a-half percent dividend yield with 6 to 7 percent earnings growth is pretty darned attractive in this environment," said Alexander Goldfarb, senior REIT analyst at Sandler O'Neill.

REITs will also benefit from rising commercial real estate values, as foreign investors continue to pour money into the U.S. office, retail and even apartment space. They had been doing that already, but Brexit will only accelerate the pace, especially of Chinese and Middle Eastern money entering the U.S. brick-and-mortar markets.

The continued flight to the safe harbor of American properties in gateway markets like New York and San Francisco reflects persistent economic and political instability in other parts of the world," said Sam Chandan, founder and chief economist of Chandan Economics. "The U.K.'s decision to exit the European Union underscores the U.S. investment thesis and could trigger a new wave of foreign capital inflows to high-quality, well-located assets."

New York City office space is already a favorite among foreign investors. Witness the high-profile sale of Manhattan's former Sony Building to Saudi Arabia's Olayan Group. The "Chippendale" tower reportedly sold for more than $1.4 billion, netting seller Joseph Chetrit a $300 million profit. New York hotels are also favored in foreign deals.

"Large institutional investors pay for New York, as they look at it more as a store of value. Growth is gravy," said Goldfarb. "They're looking to park capital. Foreigners, high net worth, really look to New York. If any sector is going to be the biggest beneficiary, it's that."

The kind of commercial real estate international buyers purchase really depends on where they're coming from.

"The Chinese buyers tend to be very focused on office buildings in high-profile markets like New York and San Francisco," said Rick Sharga, chief marketing officer of Ten-X, a real estate auction platform. "We do see a lot of multifamily and retail purchase activity by certain foreign buyers, and there are other parts of Asia where the buyers really specialize in hotels."

As for U.S. REIT exposure overseas, there is not a lot. Prologis, a warehouse REIT, does have exposure in the U.K. and Europe, but, on the flip side, could benefit from a potential increase in imports into the U.S. Simon Property owns stakes in malls in Europe and outlets in Asia, but people are going to continue to go shopping, and the underlying fundamentals in most sectors appear solid.

"Broadly speaking, European logistics is in a good spot. There is a lot of demand. Office or retail, there is a very strong fundamental underlying dynamic. They are not negatively impacted by the U.K. Vacancy rates are significantly below long-term averages," said Tom Mundy, director of research, EMEA at JLL.

REIT stocks did fall in early trading Monday, but not nearly as far as the S&P and Nasdaq. They continue to outperform broader markets.