REITs Rule Today’s Market—Under the Right Circumstances

It’s a good time to be a REIT, but the opportunities today are not for everyone. That was the message from speakers at the NYU Schack Institute of Real Estate 16th Annual REIT Symposium, hosted yesterday at the Pierre Hotel in New York City.

Courtesy Flickr Creative Commons user Cliff Beckwith

It’s a good time to be a REIT, but the opportunities today are not for everyone. That was the message from speakers at the NYU Schack Institute of Real Estate 16th Annual REIT Symposium, hosted yesterday at the Pierre Hotel in New York City.

“Our sense over the next few years is the market will value a better balance sheet,” observed Ed Walter, president & CEO of Host Hotels & Resorts, during the panel that examined trends for the next 24 months. That was not necessarily the case during the last boom time, he noted.

“Simple is better,” added Michael Kirby, chairman & director of research for Green Street Advisors, although Bryce Blair, chairman & CEO of Avalon Bay Communities Inc., also thinks greater diversification will make a difference, since it reduces risk. His own company is focused on diversifying its portfolio in a number of ways: geographically, among price points and between development and acquisition.

And joining the public REIT club has become more difficult to achieve: In this day of huge companies with significant efficiencies, a $1 billion market capitalization just isn’t enough anymore to attract attention or to support general and administrative expenses. For that reason, Kirby predicted few IPOs this year, although next year, when The Blackstone Group moves forward with the six REITs it has lined up to launch, Archstone is gearing up to return to the public markets and other investors are also likely to move forward with big ventures, the picture will be different.

“The private market offers a great deal more opportunity for more folks,” observed Matthew Lustig, vice chairman of U.S. investment banking & head of real estate for Lazard Freres & Co., during the panel “REITs vs. Private Equity.” With the private market so huge and inefficient, “our eyes have certainly shifted toward the private market much more than the public market,” he said.

In fact, both sides can learn from each other, speakers on that panel concluded. John Jacobsson, partner & head of U.S. opportunity funds for AREA Property Partners, cautioned private equity players that they need to learn to be better sellers, while Andrew Alexander, president & CEO of Weingarten Realty Investors, observed that REITs need to take a longer-term strategic view despite the need to address shareholders’ quarterly needs. That includes not just working toward building up a sizeable market cap but also developing strong relationships with tenants and having a strong, lasting structure, which will in turn attract customers.