some of the major deals that have
occurred. For instance, Boston Properties
shelled out $930 million for the John
Hancock Tower in Boston last month.
Some have even started to look toward
development again. “We’ve raised about
$400 million of equity through probably
May or June of this year, and have been
accessing the debt markets as well,” says
Bryce Blair, chairman and chief executive
officer of AvalonBay Communities Inc.,
an Arlington, VA-based multifamily REIT,
and incoming chair of NAREIT. “We’ve
been deploying capital both into new
acquisitions as well as into new develop-
ment activity.”
Once more quality product comes onto
the market, REITs should increasingly be
on the buyer side of the negotiating table,
particularly when it comes to distressed
opportunities. Some $500 billion in com-
mercial real estate debt is set to mature
next year, and another $1.8 trillion will
come due in the following years. With
most of those loans underwater, there
stands a tremendous opportunity for
REITs to take over ownership of assets.
As successful as REITs have been in
raising capital, increasing the flow of
investment dollars into the sector is a
constant goal of NAREIT. The sector
may be large, but trusts still account for
a relatively small share of the overall
commercial real estate investment pie.
Yet with REITs outperforming the rest of
the market, officials at NAREIT are hoping a broad variety of investors, especially institutions, will opt for the REIT
model of investment.
The key to achieving this, say NAREIT
officials, is education. “In our investor out-
reach activities, we have been very focused
on taking the story of the last real estate
cycle and working to ensure that investors
from all walks of life understand exactly
how well the REIT industry performed
through the cycle, and how it was able to
recapitalize itself effectively through this
financial crisis to be such a strong com-
petitive position today,” says Wechsler.
“Investment will grow as individuals and
institutions begin to better understand the
long-term performance benefits and char-
acteristics of REIT-based real estate invest-
ment. We have, in recent years, increased
our activities, our resources allocated to
getting the word out, and our plan is to
continue to increase our activities in this
area in the coming years.”
Investors will increasingly turn to REITs
as they come to realize the main lessons
learned from the financial meltdown, says
Wechsler: less leverage is better than more
leverage; simpler is better than complex;
transparency is better than opacity; and
liquidity is far better than illiquidity. REITs
offer all of those characteristics. And it
isn’t only institutions NAREIT is trying to
attract. Historically, total REIT return has
consisted of about two-thirds a dividend
base and one-third capital appreciation.
“We see the ability for investors to use
REITs as a way to generate income for cur-
rent use, and that certainly is a benefit to
retirees, or those nearing retirement,”
says Wechsler. “It’s also a way, with divi-
returns? That’s a home run.”
Despite all the positive attributes of
REITs, there are still plenty of investors
who prefer to invest in alternate oppor-
tunities. “NAREIT has done a good job
of telling the story of REITs,” says
Leupold. “Part of it is identifying what
investors are looking for. Investors
should have an allocation to real estate,
and we can argue whether that should
be 10% or 20% of a portfolio allocation.
And within that real estate allocation, a
meaningful portion should be allocated
to REITs, particularly the portion meant
to gain exposure to core real estate.”
The problem NAREIT, and REITs in
general, are facing is that they’re “preach-
dends reinvested, particularly through
retirement savings vehicles, to grow that
nest egg for the future. And REITs have
that capacity because of their strong focus
on income, which is bolstered by the capi-
tal preservation and then capital apprecia-
tion over time.”
Raising awareness of the benefits of
REITs among investors was one of Debra
A. Cafaro’s main goals when she took
over the post of 2010 NAREIT chair.
“When I became the chairman of
NAREIT, I really wanted the organization
to be single-minded in driving capital
flows into the REIT model of investing in
commercial real estate,” says Cafaro, who
is president and CEO of senior housing
and healthcare REIT Ventas in Chicago.
“Part of that is demonstrating why the
REIT model is superior, and then getting
that message out to institutional inves-
tors. What better option could you have
as an investment vehicle that’s liquid,
that is safe and that delivers better
ing to the deaf. There is an agency and/
or a self-preservation problem in some of
the people to which they’re espousing
the virtues of REITs.”
Vornado’s Fascitelli concurs, adding
that it’s a hefty task to try to get private-
market participants into the public one
because those players have to then learn
about other factors, such as the flow of
capital, stock market movements and the
volatility associated with it. The indus-
try’s bigger size and quality of its assets
will help attract more and more capital,
he maintains. “The current REIT boom
started really in the early 1990s,” he says.
“So if you think about it, in 20 years an
awful lot has come to pass. And this cycle
will make it another opportune time to
leapfrog and growth.”
A large part of spreading the word has
to do with research. NAREIT maintains
an active research program to develop
data that illustrates the benefit of REIT
investment for institutional portfolios.
