April Brings Surprise Revival of Global RE Stocks

For commercial real state concerns around the world, it appears that the light at the end of the tunnel is getting brighter, at least as far as equities are concerned. Buoyed by successes in raising capital and improving balance sheets, property companies saw their stocks rally significantly, experiencing a total return of more than 20 percent in April, according to a new report by ING Clarion Real Estate Securities L.P. Looking at the major regions across the globe, North American real estate firms topped the list with returns totaling 30.7 percent. “Stocks, in our opinion, were oversold in the first part of the year to the point where U.S. real estate stocks were down 40 percent,” Joseph Smith, managing director with ING Clarion Real Estate Securities, told CPN. Europe was second in line with total returns of 20.6 percent, followed by the Asia-Pacific region with 13.3 percent. “The surprise was how well the stock market responded to equity offerings,” Smith said. “Real estate companies were able to access both equity and debt to ride out the rough seas.” On the equity side, the U.S. REITs took the lead in April, raising an aggregate $7 billion of fresh capital. ProLogis pocketed the most, over $1 billion, through its public offering of 152 million common shares at $6.60 per share. As for debt, U.S. real estate companies with multi-family assets, a relatively stable sector of the market, continued to find financing through government-sponsored entities Fannie Mae and Freddie Mac. The healthcare property sector, which is also holding its own compared to the likes of office and retail, is also still able to attract secured debt. And unsecured debt markets are percolating. Last month, healthcare REIT Ventas raised $200 million of 7-year debt at 9.6 percent. U.S. property companies have raised a total of $2.1 billion in unsecured debt so far this year. As real estate firms’ financial situations continue to perk up with improved access to equity and debt, so will their stock; however, the bad times aren’t quite over. “Stocks are not yet positive,” Smith said. It’s not a bear market. All we’ve done is recover from very discounted values in early March. But as things begin to stabilize in the bank sector and the credit crisis ebbs, our hope is that real estate companies will be valued based on real estate fundamentals, as opposed to being viewed as capital intensive businesses without capital.”