Trust), Pennsylvania REIT and
Washington REIT. Within four years,
one REIT—Continental Mortgage
Investors—made it onto the New York
Stock Exchange, and by 1969, the concept had gone global with REIT legislation being signed in Europe.
Today, there are some 150 public REITs
that trade on various US stock exchanges,
134 of which on the NYSE. Whereas the
market was comprised primarily of mortgage REITs in its early years, the majority
of trusts today are equity based. Listed
REITs in the nation today account for a
$350-billion equity market capitalization,
with an average daily trading volume of
$3.3 billion as of October. Unlisted REITs
manage more than $70 billion and offshore REITs and listed property firms
account for another $700 billion or more.
If you weren’t keeping count, that’s a
global REIT investment universe of more
than $1 trillion.
Like the REIT universe itself,
Washington, DC-based NAREIT has grown
in size and evolved to represent much
more than it did half a century ago, yet
without altering its mission to preserve
and promote the REIT approach to real
estate investment. In providing a global
voice to the REIT industry, the organization works to ensure that policy makers
“know and understand the benefits of
REIT-based real estate investing and that
the investment community better understands the basis for investing in real estate
through trusts,” says NAREIT’s president
and chief executive officer, Steven A.
Wechsler.
Coming out of this latest downturn,
REITs are in an excellent position compared to other entities in the industry.
They entered the recession in a good
place, considering they had much less
leverage than their counterparts in the
private market, who were further hobbled by the fall of the capital markets.
Yet REITs have been able to access capital others have not by raising equity and
debt through the public capital markets,
allowing them to pay down or refinance
existing debt, as well as strengthen their
balance sheets and their operational
capacity.
“Since early 2009, public market inves-
tors have taken a far more positive and
encouraging view of the real estate market
and they’ve had an opportunity to express
those views through their acquisition of
both debt and equity of the REIT indus-
try,” says Michael R. Grupe, executive vice
president of research and investor out-
reach for NAREIT. “That has provided a
significant amount of financing and liquid-
ity, which has allowed the REIT industry to
refinance outstanding debt, pay down out-
standing debt, strengthen balance sheets
and to position itself for acquisition and
growth opportunities that investors see
coming. It may be coming a little more
slowly than had been anticipated a year or
two ago, but they know that these opportu-
nities will be forthcoming.”
The REIT industry managed to raise
more than $21 billion in 2009 alone
of mid-2009. While we’re still off 20% to
25% from the peak, we would attribute
much of those gains to the fact that we
are in a low return world and investors
have lowered return expectations for all
asset classes, including real estate. So
REITs, as a very liquid vehicle, more
quickly reflect changes in the value of the
underlying real estate assets.”
To put it bluntly, “REITs came through
the real estate crisis the best and the quick-
est,” says Michael D. Fascitelli, president
and chief executive officer of Vornado
Realty Trust and member of NAREIT’s
executive committee. “They redid their
balance sheets, they issued equity, they
through the issuance of secondary offerings. IPOs raised an additional $3 billion,
making 2009 the second largest year ever
for REIT equity offerings, after the $40 billion that was raised in 1997. This year is also
proving to be a banner one, with $11 billion
in equity raised in the first half alone.
The access to equity also worked to
REITs’ favor when it came to accessing
unsecured debt on favorable terms. Last
year, trusts raised $10.5 billion in unsecured debt, and have already surpassed
that number in 2010, raising $11 billion
through midyear.
“While we’re seeing thawing in the
credit markets, credit and capital are still
not readily available for all private market
participants, but are very available for
most of the REITs,” observes Craig
Leupold, president of Green Street
Advisors in Newport Beach, CA. This,
among other reasons, has REIT values up
as well. “The Green Street Commercial
Property Price Index shows that values
are up about 25% to 30% from the trough
accessed the unsecured market, they
bought in—they did an awful lot of things
during the 2008 to 2010 timeframe that
ensured their survival, and helped put
them in a position of prosperity after they
ensured their survival. The public markets
today have a competitive advantage to the
private markets.”
Despite the shutdown of the private
markets, REITs raised $34.7 billion in
capital in 2009 and $35.3 billion through
October 2010. All of this firepower REITs
now have has observers believing they will
play a key role in driving the market’s
momentum. Trusts have proven their
wherewithal as a sound real estate invest-
ment, says Leupold. “REITs can access
public market equity, public market debt,
private market equity and private market
debt,” he says. “Two of those four options
are not available for most private market
participants.”
Most REITs used the capital they raised
to pay down debt and restructure their
balance sheets, but they were also behind
