REIT Leaders Size Up Industry’s Gains, Challenges
- Nov 15, 2010
November 15, 2010
By Paul Rosta, Senior Editor
Having weathered two harsh years, the REIT industry is poised to take advantage of significant opportunities for growth during the next couple of years. That was the consensus of leading industry players during the wide-ranging opening session of the National Association of Real Estate Investment Trusts’ annual convention Monday afternoon in New York City.
“In 2010, we are witnessing a dramatic reversal of the outmigration of real estate assets from public to private hands Ventas Inc. Chairman & CEO Debra Cafaro told a packed ballroom at the Waldorf-Astoria Hotel in Midtown Manhattan. Cafaro, who is also NAREIT’s outgoing chairman, ticked off highlights of recent industry accomplishments: raising $70 million of equity and debt over the past two years; a 25 percent rate of return for 2010, is three times the Standard & Poor 500 average; and not least, reduction of the industry’s debt ratio from 60 percent of enterprise value in March 2009 to 40 of enterprise value today.
NAREIT’s 2011 chairman, AvalonBay Communities Inc. chairman & CEO Bryce Blair, followed Cafaro’s assessment by identifying top priorities for next year. NAREIT is backing proposed federal legislation that would update and streamline regulations that cover the industry. He challenged the industry to change perceptions of REITs. “We simply need to do a better job of telling the REIT industry’s story,” he argued. He singled out the nation’s pension funds, which he said could potentially increase their allocation to public REITs by several times today’s 5 percent average.
In the day’s keynote panel discussion, moderated by Blair, four CEOs offered perspectives on lessons learned and on the REIT industry’s next phase. Martin Cohen, co-chairman & co-CEO of Cohen & Steers Capital Management, said that the cycle has reminded the industry that a strong business plan, a solid organization and a well-managed portfolio are all essential to success. Referring to the necessity for wise balance sheet management, Cohen added, “It’s a lesson that we seem to learn every five or 10 years, but I think we’ve got it right this time.”
Commenting on the fall and subsequent rise of CMBS, Vornado Realty Trust President & CEO Michael Fascitelli said, “There’s nothing wrong with CMBS. It was just abused. It wasn’t meant to be an IQ test.” The future of securitization, he added, will be marked by “simplicity, transparency and a lower amount of debt.”
Offering an international perspective, Unibail-Rodamco chairman & CEO Guillame Poitrinal noted that Europe’s still-young industry needs “a kind of broader environment where REITS can invest from one country to another without being taxed.” Europe’s REIT community is advocating for Germany, Italy and Spain to come on board, but Pointrinal noted that those governments have been difficult to persuade that a tax-free structure can actually generate additional revenue.
He added that the green building movement will hasten the obsolescence of Europe’s outdated building stock especially in the office sector. Fascitelli followed by suggesting that although popularity with tenants give sustainable practices in the U.S. a certain degree of value, “It’s not easy to justify on pure economics.”
In the multi-family business, raising development capital from institutional investors is easier these days than raising capital for acquisitions, reported Archstone CEO Scot Sellers. He estimated that his company will start five or six development projects this year and later predicted that 2011 might see a surprisingly energetic rebound of development.
Also looking ahead to next year, Cohen speculated that the U.S.-led effort to inflate asset prices will succeed at home and beyond American borders: “A year from now, what we thought was expensive will look cheap.”