TCW Global Real Estate Fund Lags REIT Index as Tower Bets Drag

A strong quarter that still trailed the benchmark

The TCW Global Real Estate Fund had a good second quarter of 2026 in absolute terms and a weak one against its benchmark. Its I share class returned 9.54% after fees, while the S&P Global REIT Index gained 11.08%.11 TCW says its overweight in hotels, resorts and cruise lines helped relative performance, and its overweight in telecom tower REITs hurt it.11

The stock-level results follow the same split. InterContinental Hotels Group and Welltower were the fund's best performers. Crown Castle and Cellnex Telecom were its worst.12 The manager also sold out of Phillips Edison entirely, saying the stock had reached full valuation, and moved the money into new positions, including Australia's Charter Hall Group. TCW says it bought Charter Hall because the company is shifting toward fee-based revenue and because it expects Australian property values and Asia-Pacific capital flows to recover.12

The fund is small, so its quarterly letter is not a market-moving event. TCW's product page lists about $41.19 million in total net assets.13 Morningstar shows $46.3 million, and MutualFunds.com puts the figure nearer $31.6 million across 33 holdings.1516 The figures vary by share class and reporting date, but every one of them puts the fund among the smallest in its category.16 The letter is still useful because it is a concentrated, high-conviction portfolio, and it shows which parts of real estate are paying off in 2026 and which are not.

The tower problem: good results, weak stock

Crown Castle was a costly holding even though the company itself reported a decent quarter. In the second quarter it closed the sale of its fiber and small-cell businesses for $8.4 billion in net proceeds. It then bought back $1 billion of stock and repaid more than $7 billion of debt.50 Earnings beat expectations and the company raised its outlook.41

The underlying numbers were softer. Site rental revenue fell 4% from a year earlier, to $967 million, and net income dropped 68%.50 By mid-August the shares traded near $74, below both their 50-day and 200-day moving averages, even though analysts' average price target sat around $95.47

One explanation, and it is our reading rather than anything TCW has said, is that investors stopped rewarding towers for their steady contracted cash flow. Money moved instead to property types tied directly to AI and computing demand. Towers ended up in an awkward spot: defensive in name, but missing the growth that drove the rest of the digital-infrastructure trade. That rotation looks like the main reason TCW's tower overweight hurt it in a rising market.

Data centers are pulling in the most capital

The rest of the portfolio is heavily weighted to data centers. Recent top-ten holdings include Equinix, Prologis, Iron Mountain and Digital Realty, along with Welltower, IHG, Dexus and Mid-America Apartment Communities.16 The FT's fund tearsheet also lists Equinix, Digital Realty and Iron Mountain among the largest positions.14 TCW's own marketing pitches the fund as a way to capture long-term trends such as cloud computing and AI.18

Second-quarter results across the sector support that bet. Digital Realty reported a record backlog of signed leases that have not yet started, worth $1.9 billion of annualized rent at 100% share. Rents on renewal leases rose 25.4% on a cash basis.5 In July it signed two hyperscale leases worth $410 million of annualized rent at 100% share.5 Iron Mountain had leased 110 megawatts of data-center capacity by early August and raised its full-year revenue guidance.6 Prologis, best known for warehouses, says its data-center power pipeline has grown to 5.8 gigawatts.2

Private capital is moving the same way. Blackstone's new data-center REIT priced a $2 billion offering, which the company describes as the largest blind-pool REIT IPO on record. The firm says its data-center platform is now worth $185 billion, up from $130 billion at the start of the year.1 Its CFO called data centers the single driver of appreciation in its real estate portfolio, offsetting declines in office and life sciences.1 Realty Income has also launched a data-center joint venture seeded with more than $6 billion of assets.4 Gartner expects spending on data-center systems to reach $822 billion in 2026.3

The implication for investors is that data centers no longer behave like a niche corner of real estate. They are now the asset class setting prices for land, power and construction capacity that apartments and warehouses also compete for.1 Owning a lot of data-center exposure is now close to the consensus position. With that much money crowding in, future returns depend on whether leasing keeps pace, and Blackstone's early leasing will be one of the first tests of whether the pace holds up.1

Office: occupancy is recovering, office loans are not

Office is where the various sources disagree most. Nareit's latest analysis says office demand has exceeded new supply for four straight quarters. Occupancy stood at 86.1% in the second quarter, and rents were up 1.8% over four quarters.9 Nareit's fund tracker also shows that office was the only one of the four traditional property types that active managers overweighted relative to the index.9 Office REITs reported solid leasing in the quarter, and most managed to raise average rents.10

The debt market tells a different story. CRED iQ says the office CMBS delinquency rate, which counts performing loans that are past maturity, hit 13.2% in August. That is the highest reading since at least 2019.30 Trepp's narrower measure put office at 12.00% the same month.29 The cause is refinancing more than unpaid rent. CRED iQ attributes 71% of distressed office balances to failed or imminent refinancings rather than missed payments, and about $39 billion of office CMBS matures over the next 12 months.30 Even fully leased buildings are struggling to refinance.30

The broader loan market has stabilized. The Mortgage Bankers Association says commercial mortgage delinquencies fell in the second quarter, and the CMBS delinquency rate dropped to 4.82% from 5.21%, though office and lodging remain the weak spots.22 At commercial banks, the delinquency rate on commercial real estate loans edged down to 1.53%.21

Our view is that both stories are true and describe different things. Office demand is recovering at the level of tenants and leases. The office loans written before interest rates rose are a separate problem that has not been fixed. TCW's portfolio largely sidesteps that split: its listed holdings lean toward data centers, healthcare, logistics and hotels, with only selective office-related exposure such as Australia's Dexus.16

Apartments: rents are rising again, slowly

Apartment rents are picking up, but only modestly. Nareit says apartment supply and demand are nearing balance after more than four years of oversupply. Even so, occupancy averaged 91.9%, close to its lowest level since 2000, and rent growth was just 0.8%.9 Apartments.com recorded the same 0.8% annual increase in September, with national vacancy at 7.8%.32 Apartment List's measure still shows rents down 0.8% from a year earlier. However, rents have now risen for seven months in a row, and year-over-year growth has improved since bottoming in April.33

The direction depends on new construction. Marcus & Millichap expects apartment completions to fall about 34% in 2026, to levels not seen since 2014.35 RealPage forecasts national effective rents rising about 1.9% over the next four quarters.31 Where rents go up depends heavily on location. San Francisco rents are up 11% year over year on Apartment List's measure, driven by AI hiring, while many Sun Belt markets are still absorbing a surge of new units.33 AvalonBay reported 9.6% same-store revenue growth in San Francisco, and both it and Equity Residential raised their full-year guidance.1

Our reading is that an apartment recovery has started, but it is limited to particular markets rather than showing up nationwide. TCW holds Mid-America, a Sun Belt landlord. That position is a bet that falling supply will eventually reach Sun Belt rents, even though coastal markets are recovering first.16

What the quarter shows

Taken together, TCW's quarter shows how narrow the winning side of real estate has become. Data centers, healthcare and hotels did well. Towers lagged even though their companies reported sound results. Office remains divided between improving leasing and failing loans. Apartments are only starting to recover. TCW says it is positioning toward undervalued property types with favorable supply and demand, with a focus on financial flexibility and disciplined pricing.11

That strategy carries visible risk. Morningstar rates the fund Neutral, citing a below-average Process rating, and turnover has been high.1516 The second quarter showed that a heavily concentrated fund can rise more than 9% and still trail its index when one contrarian position, in this case towers, goes against it.