After raising billions during the downturn, public companies have
been putting it to use buying, refinancing and developing, even as
some rethink their strategies
REITs GO ON A
SPENDING SPREE
By Jennifer LeClaire
REITs are on the rise again. They’ve raised billions of capital in the past few years, and many are see- ing strong returns. In fact, NAREIT reports that the total return
of the US REIT market outpaced the broader equity
market in the past year. With returns of 11.29%, REITs
beat out the S&P 500’s 8.54%. All the while, REITs are
still raising significant dollars. They raised $21.1 billion
in the first quarter of 2012, including $10.6 billion of
equity, NAREIT reports. That compares to $51.3 billion in all of 2011.
The question now is, how are REITs spending all this
cash? The answer is varied. Although some are refinancing
debt or doing mergers, most are acquiring or developing
properties—or both. With distressed assets still up for grabs
and new development opportunities arising in certain sectors, REITs are putting their cash to use in 2012.
On the acquisition scene, the billions of dollars REITs
have raised—combined with the newly available commercial real estate inventory that’s coming to market—is creating a
perfect storm of sorts. Public companies have been staking up
dollars through the downturn, but quality commercial properties were hard to find. Commercial assets were often either tied
up in bank-owned purgatory or with stable sellers who were
unwilling to sell at a discount in a down market.
In 2012, all that is changing—and fast. NAREIT estimates about
$20 billion in five-year commercial real estate loans made at the peak
of the last real estate cycle are coming due, and many will have difficulty finding refis. “We’re seeing a big increase in equity and debt
offerings because there are now properties for REITs to acquire,”
says Brad Case, senior vice president of research at Washington,
DC-based NAREIT. “REITs have a competitive advantage when it
comes to accessing capital and will move to acquire properties
from non-REIT investors who got into trouble.”
