It’s all a matter of who has the cash. In my last post, I discussed the difficulties that commercial real estate owners are encountering with attempts to re-finance outstanding adjustable rate loans that are set to mature in the very near future. This problem is in sharp contrast to the situations many of the country’s largest REITs find themselves in: rolling in money, and ready to spend.
REITs (Real Estate Investment Trusts) have the ability to issue and sell common and preferred shares in the REIT to raise money, and they have been doing this for the past three years. According to the National Association of Real Estate Investment Trusts, just last year alone $37.5 billion was raised by REITs from public offerings. These proceeds were used to provide additional liquidity to restructure balance sheets and to reduce debt in order to survive the downturn. But now, most of these REITs, having recapitalized, are ready to use their funds to invest in acquiring promising commercial real estate assets.
According to a recent article in the Wall Street Journal, REITs made $34.6 billion in commercial real estate acquisitions in 2011, comprising 2322 deals, according to the CoStar Group. While this was about 40% more than 2010, it was not as high as had been expected. One of the reasons for this was the downgrade of the US credit rating in August, and questions on how the European debt crisis might affect the United States economy. In 2012, however, with signs of an improving US economy, investors expect REITS to push forward with acquisitions in all manner of commercial real estate, such as shopping malls, office buildings and apartment developments. The lessening fear of a double-dip recession, which is fueling American spending, is another factor in this move towards acquisition.
“Judging what we see in the pipeline, we expect a very robust 2012 in the REIT space” for acquisitions, says Joe Coco, a partner at Skadden, Arps mergers and acquisitions division who was quoted in the WSJ article. “REITs are in a very strong position right now,” he added, saying that he anticipates commercial landlords in all property types to aggressively seek acquisitions.
Real estate investment trusts, shares of which are traded much like stocks, are a way for individuals to invest in income-producing real estate assets without having the hassle of management. REITs are required by law to pay at least 90% of their taxable income out as dividends. Some of the larger REITS are Simon Property Group, which invests in shopping malls, Ventas Inc., which invests in health-care facilities, and UDR, Inc., which invests in multi-family housing.