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REIT Market Snapshot: REITs' Outperformance Sustained

Thu, 02 Sep 2010 17:44:30 -0400

Despite dipping in August, REIT returns continue to outpace the broader markets. In the first eight months of 2010, equity REIT returns increased nearly 14 percent.

NAREIT Vice President of Research & Industry Information Brad Case notes that publicly traded REITs have a "fairly strong competitive advantage" relative to private investors in commercial real estate, which should benefit the industry "several years into the future." REITs' access to solid sources of debt and equity capital give them an edge over the private market, according to Case, putting them in position to take advantage of distressed selling.

"To a great extent, investors are really responding to the fact that REIT earnings are likely to grow very strongly over the next few years, both because of those opportunities to pick up properties at good prices and also because of the eventual recovery of the economy," he says.

Case also says REITs still have room for their returns to improve, as they continue to trail the market highs of 2007 by approximately 30 percent.

Case points out that mortgage REITs have averaged returns of 9 percent per year on a 10-year basis, as well as a current dividend yield of 14 percent.

REIT.com Spotlight: Pension and Endowment Funds Eye REITs

Fri, 27 Aug 2010 14:52:04 -0400

Vice President of Investment Affairs & Investor Education Meredith Despins says the $5 trillion pension and endowment fund market has become an important area of focus for NAREIT's outreach and education program. Estimates put these institutions' combined investment in commerical real estate at more than $500 billion. While these institutional investors have kept their capital on the sidelines in 2008 and 2009, industry research suggests that they plan to boost new investment in commercial real estate upwards of 90 percent over last year to $34 billion in 2010. Despins says that in meetings with endowments and pension funds, the members of NAREIT's Research & Investor Outreach team are finding heightened interest in REIT investment. These institutions are "moving up the learning curve" with regard to publicly traded REITs, embracing the "broad utility and flexibility" that they bring to portfolios, according to Despins.

Industrial REIT Sector Still Facing Pressure, Green Street Says

Fri, 27 Aug 2010 10:00:19 -0400

Industrial REITs continue to face pressure worldwide, and the latest data indicate the sector has yet to truly enter a recovery phase, according to Steven Frankel, analyst with Green Street Advisors and head of the firm’s industrial sector team. In the latest edition of Word on the Beach: Green Street Advisor’s Monthly Market Insights for August 2010, Frankel talks with REIT.com’s Allen Kenney about the state of industrial sector fundamentals.

Of particular note in the United States, Frankel says, are trends in inventory re-stocking and consumption. Consumers are buying less, while retailers are emphasizing "just-in-time" inventory processes. "Unless these trends are reversed, net absorption is likely to be subdued compared with prior cycles," Frankel says of the sector’s potential for recovery.

Frankel says that Green Street’s current view of the sector is through a "new normal" lens and that it expects economic growth and consumption will be constrained over the medium-term as the United States works through a de-leveraging cycle and consumers pay down debt instead of spend. Additionally, Frankel said he expects the U.S. recovery to differ between coastal and inland markets.

"We expect coastal markets to recover more quickly. We saw evidence that most of these markets bottomed in the second quarter. Vacancy remains high in coastal markets, but is several hundred basis points lower than in inland areas, which gives these higher-barrier markets a leg up in turning things around," Frankel says. "In addition, coastal, port markets tend to have large population centers, a more stable source of demand than the robust consumption needed for large, one million plus square foot warehouses in the middle of the country."

When it comes to opportunities in the current market, Frankel says that REITs can take advantage of the current environment through selected acquisitions. He believes that the market for core, prime assets has heated up, notably on the coasts. He adds that there remain opportunities to acquire good value-add or secondary quality product at attractive prices and meaningful discounts to replacement cost.

According to Frankel, there is also increased appetite on the part of private capital sources, which should enable some of the REITs to raise new funds.

"In addition, while there remains a large overhang of existing stock, there has been increased build-to-suit activity, which some REITs are capitalizing on. Generally, the REITs with the better balance sheets in the sector will be able to take advantage of more opportunities than their higher-levered peers," Frankel says.

REIT.com Spotlight: REITs As a Distinct Asset Allocation

Fri, 20 Aug 2010 13:05:38 -0400

Independent third-party analysis conducted recently has highlighted the importance of including REITs as a distinct asset allocation in various investment portfolios, according to NAREIT Executive Vice President of Research & Investor Outreach Michael Grupe. Grupe points out recent recommendations by IndexUniverse.com, Money magazine and the American Association of Individual Investors (AAII).

IndexUniverse.com developed a low-cost, model ETF portfolio. In that portfolio, the Vanguard REIT Index Fund accounts for 5 percent of the total allocation.

The August issue of Money magazine listed what it calls a "fully diversified model portfolio." That model portfolio contains a 10 percent allocation to REITs.

AAII also offers a model ETF portfolio. That model includes a 16 percent allocation to the iShares Cohen & Steers Realty Majors Fund and 5 percent allocation to the SPDR Dow Jones International Real Estate Fund, for a total global REIT allocation of 21 percent of the overall portfolio.

“These examples serve to illustrate how publicly traded real estate investment, through REITs and listed property companies around the world, has increasingly established itself in the minds of investment professionals and the available investment literature as a distinct asset class,” Grupe says. “An asset class that all investors should include as a source of important diversification as they build portfolios for long-term wealth accumulation and retirement savings.”

REIT.com Spotlight: REITs' History of Outperformance

Thu, 19 Aug 2010 11:49:11 -0400

Research illustrates publicly traded REITs' consistent outperformance relative to other forms of commercial real estate investment, according to NAREIT Vice President of Research & Industry Information Brad Case. A NAREIT analysis using data from NCREIF and The Townsend Group found that during the last full business cycle, private equity funds produced an average net total return of 7.7 percent per year for core funds, while value added funds averaged annual net total returns of 8.6 percent and opportunistic funds averaged net total returns of 12.6 percent per year. Publicly traded REITs averaged annual net total returns of 13.4 percent in the same cycle. Case attributes the difference in the level of returns to the essential business model of each asset class. He notes that private equity real estate funds tend to face more pressure to buy and sell properties, even when market conditions are not ideal. Furthermore, Case says the transparency and liquidity built into the REIT model allow for better long-term planning and opportunistic decision making.

Verwer: Australian REITs Have Reinvented Themselves

Mon, 16 Aug 2010 11:14:51 -0400

Australian REITs have reinvented themselves over the past two years, says Peter Verwer, chief executive of the Property Council of Australia.

"Gearing levels are down. There has been a refocusing on passive income streams and the domestic market. So the international exposures have been re-examined," Verwer says. "REITs have become a defensive stock again and they are true to label."

Understandably, Verwer says capital management has been a major focus of Australian REITs.

"Balance sheets, by and large, are very healthy," he says. "That is why we have seen REITs outperform the general market."

Recently there has been an influx of foreign capital, particularly from Asia, into Australian REITs. Verwer says he expects this trend to continue. He says it is a win-win in that it provides the REITs a chance to raise money at cheap rates internationally, and investors get a 7 percent to 8 percent yield.

Looking ahead, Verwer says the biggest challenges ahead for Australia's listed property market are market confidence, finance issues and concerns about a double-dip.

"This year began in a very confident mode. Most analysts thought that the worst was behind us," Verwer says, adding that Australia's economy held up much better than most. "However, starting in March and April, the uncertainty that has flowed through from Europe and the United States means that there is less confidence now than there was at the beginning of the year."

Diversified Tenant Base Buffers Real Estate Downturn

Sat, 14 Aug 2010 16:50:52 -0400

Gladstone Commercial Corporation (NASDAQ: GOOD) specializes in triple-net leased office and industrial properties. Chairman and CEO David Gladstone says the company's diverse portfolio helped it through the economic downturn.

"Diversification helps you because if one tenant goes out of business it is not a big impact," Gladstone says. "We may go down to 97 percent occupancy but that will not impact our dividend or the business overall."

Gladstone says the composition of the real estate capital markets has been one of the biggest changes to come out of the difficult times of the past two years.

"First of all, the CMBS marketplace has been dead for at least two years," Gladstone says, adding that some activity has started to trickle out. "It probably won't come back fully for another couple of years."

Gladstone says in many ways it is like the old days before the advent of CMBS, where executives have to go "knock on doors" as there is no longer one central place to go.

The second half of the year will still be marked by REITs deleveraging.

"The big question will be 'How much have you delevered?'" Gladstone says. "If you have, then shareholders will like you. If not then you will probably still have a depressed stock price."

In addition to running Gladstone Commercial, Gladstone is the author of two books on financing for small to medium-sized businesses. He says the books are in about 60 business schools.

"The problem with small business is there is not enough capital today," he says.

2010 NAREIT Compensation Survey

Wed, 11 Aug 2010 16:25:15 -0400

The 2010 NAREIT Compensation Survey feature responses from nearly 100 real estate organizations has been released.

FPL Associates has conducted the annual survey for 15 consecutive years, and managing director Jeremy Banoff notes that it is considered the industry's most comprehensive compensation report. Banoff says the survey aims to capture a snapshot of a variety of trends in compensation, including how developments in the real estate industry and general economic climate are impacting compensation.

The 2010 survey includes information on benefits, such as retirement plan options, insurance plans and vacation policies. Banoff points out that the 2010 edition has widened the number of positions within firms covered by the survey to provide a fuller picture of industry compensation trends.

Banoff says that within the real estate industry, companies are beginning to hire greater numbers of asset managers, capital-raising specialists and transaction professionals. Overall, Banoff says the survey reflects a sense of "cautious optimism" within the industry.

REIT Market Snapshot: Yielding to Future Returns

Tue, 03 Aug 2010 14:06:56 -0400

As temperatures continue to rise this summer, so to do REIT returns, according to NAREIT Vice President of Research and Industry Information Brad Case. The FTSE NAREIT Equity REIT Index posted a 9.52 percent total return for the month of July, compared to 7.01 percent for the S&P 500.

In fact, Case says the strong performance seen in July is merely a glimpse of what REIT investors have been witnessing for much longer periods of time.

"Over the last 10 years, REIT investors have received total returns averaging 9.4 percent per year," Case says. "Whereas investors in the S&P 500 have actually lost money over the last 10 years and even investors in smaller stocks and value-added stocks have not kept up with REIT investors."

However, Case says it is important that investors realize that the strength seen in REIT returns recently is not indicative of the health of the broader commercial real estate market.

"In July we continued to witness a real disconnect with what is happening to REITs and the broad real estate market," Case says. "In fact, the real estate market itself continues to be quite weak. REIT investors are certainly aware of that, but they are really looking forward to the fact that REITs are going to be able to buy good properties at very favorable prices over the next few years."

Case adds that the current dividend yield of REITs is another example of the discount between REITs and the broader real estate market.

"REIT dividend yields are at about 4.6 percent, which by historical REIT standards is very low," Case says. "REIT investors are essentially saying that the lower current dividend yield is based on current earnings, which in the very weak real estate environment right now is not surprising. REITs are looking forward to very strong earnings going forward, so REIT investors are really valuing stock prices according to where they expect the yield to go over the next few years."

Favorable Outlook for European Listed Real Estate Market

Wed, 28 Jul 2010 10:04:06 -0400

Claudia Reich Floyd, vice president and head of real estate securities for 4IP Management, spoke with REIT.com's Allen Kenney at REITWeek 2010 about the state of the European commercial real estate markets.

Floyd says the anxiety in the European financial system stemming from concerns about Greece did not impact real estate securities in Europe anymore than securities in the U.S. or Asia.

"The flight to securities has helped the European real estate markets," Floyd says. "You have seen stock corrections. Currency has played a major factor. You see the markets that are more stable outperforming."

Floyd says she does not expect convergence of REIT rules to establish a single European-REIT legislation for at least the next several years due to broader issues with the European Union.

That being said, Floyd says in recent months interest has among European institutions to invest in real estate securities. She adds that interest has been particularly high in Germany. The liquidity advantage of REITs will continue to be a major draw for institutions, she says.

Looking ahead to the second half of 2010, Floyd says a major theme related to the European commercial real estate markets will be the introduction of new companies to the market through IPOs.

"Also, I expect existing companies that have stable balance sheets will buy assets banks are starting to unload from their balance sheets," Floyd says.

Being Public REIT Fuels Cogdell Spencer's Expansion

Mon, 26 Jul 2010 08:54:43 -0400

For Frank Spencer, president and chief executive officer of Cogdell Spencer Inc. (NYSE: CSA), trends are very encouraging for his company's sector. And the passage of health care reform legislation should only be more good news for the medical office owner.

"If you think about the trends of the last 20 years, technology, cost, patient convenience, they are all pointing to an outpatient delivery system," Spencer says. "With health care reform, you are going to have more people insured, which will drive more people to primary care and be incrementally positive."

Cogdell Spencer got its start as a small, regional player. However, the company has now grown to a leader in the medical office segment. Spencer says the key to making that happen was becoming a public company.

"The access to capital fundamentally changes your strategic alternatives," Spencer says. "When you are a private company you are limited because you have to decide with each deal how to finance it. When you get the public access to capital, you have the ability to look broader."

Spencer says that enabled the company two years ago to acquire Marshall Erdman and significantly ramp up its standing in the market and gain a presence coast-to-coast. Absent the public capital, Spencer says, that deal never would have been possible.

Recently, Spencer announced plans that he would be stepping down as president and CEO at the end of October. The firm has begun a search for his successor.

"I'm excited about bringing in new talent to join an already terrific team," Spencer says. "One of the reasons I was comfortable stepping down is that we have a team of experts who I believe are the best in the industry."

Spencer says the key to ensuring a smooth transition will be the presence of the experienced team and his ongoing presence on the company's board.

Kite Realty Eyes Retail Development Renewal

Wed, 21 Jul 2010 14:04:05 -0400

Trends in the retail sector continue to improve, according to John Kite, chairman and CEO of Kite Realty Group Trust (NYSE: KRG). Speaking at REITWeek 2010, Kite says retailers are not only talking about filling existing space but beginning to look at new store development.

"Clearly the market is better, but we are in the early stages of finding stabilization," Kite says. "We have gone through a very difficult time in this country. We have turned the corner with regards to the crisis over rents and occupancies, but it takes time to build your way back."

The fallout from the credit crisis and economic turmoil has been a big hole to climb out of, likely to be a multi-year process. Kite says the credit crisis impacted every aspect of the business in some way.

"We are going to try and be more conservative going forward and have a liquidity cushion," Kite says. "We will operate the company cautiously with an eye to when that next downturn might be."

In terms of development activity, Kite says the company still has an active development pipeline but was fortunate to not have a lot of projects in the build stage during the downturn.

"We have six projects that we haven't begun. We have been cautious about when to start those," Kite says. "Now we are starting to get the traction, particularly with the anchor tenants, that allow us to get to a comfortable pre-leasing level where we would be ready to go forward."

Hotel Fundamentals Turn Corner

Tue, 20 Jul 2010 08:31:27 -0400

At REITWeek 2010 in Chicago, Jay Shah, CEO of Hersha Hospitality Trust (NYSE: HT), described 2010 as the year the lodging sector turned the corner in terms of fundamental recovery.

"The second quarter data suggests that we are beginning our long climb out (from the bottom)," Shah says.

Shah says Hersha maintains an active sustainability program, called Earth View. The first step, he says, has been tackling lower-hanging energy efficiency opportunities across its portfolio.

Looking forward, Shah says the question of when the debt markets fully return will likely continue to overhang the REIT industry.

"I don't see anything that suggests to me that we won't see a more robust debt market as we get into the latter half of 2011," Shah says. "But I think it is going to slowdown transaction values and possibly keep a bit of a price appreciation on real estate as we move through the rest of 2010."

Focus On Offense A Positive Sign

Mon, 19 Jul 2010 09:32:26 -0400

Chairman and CEO Michael Glimcher says he has moved from "cautiously optimistic" about Glimcher Realty Trust's (NYSE: GRT) prospects and regional mall fundamentals last November to fully optimistic heading into the second half of 2010. He cited leasing spreads and deal activity among two areas that have seen solid improvement over that time.

Last year, he says, investors were focusing on the company's defensive activities and what it was doing to shore up its balance sheet. However, this year the conversation has switched to offense and how the company will grow.

"That to me represents a huge swing and a great positive," Glimcher says.

In addition, Glimcher said he saw no national retailer bankruptcies among tenants in the first quarter of 2010. Something he described as a "first" in his career.

"The balance sheets of the retailers we deal with are so much better than they have ever been," Glimcher says. "They manage their inventories so tightly and they improve gross margin. We think they have really responded well to the economic crisis."

Looking at portfolio expansion, Glimcher currently has two assets under management with the Blackstone Group, a relationship Glimcher says he hopes to continue to leverage in the future.

Note Sales on the Rise

Fri, 16 Jul 2010 14:20:18 -0400

Meredith Despins, NAREIT's vice president of Investment Affairs & Investor Education, sat down with Michael Hudgins, global REIT strategist with J.P. Morgan Asset Management, during REITWeek 2010 to discuss trends impact the REIT landscape.

The first topic they touched upon was what lingering impact Greece's financial crisis could have on commercial real estate markets.

"With LIBOR up, risk spread on debt up, you could see a halt to the recovery in real estate values that we've seen," Hudgins says. "This would be the case until cash flows start to go positive for those properties and those firms that manage them."

Hudgins says his firm has seen an increase in note sales, where the property is put up for sale because the property cash flow can not cover the debt service.

In terms of allocations between public and private real estate, Hudgins says he understands many investors buying into private funds in anticipation that values are currently at or near the bottom.

"However, what's encouraging is that clients are increasingly asking us questions about things like liquidity and global diversification that we think will lead to more activity in the REIT space. We expect more funds from institutions to go into real estate securities," Hudgins says.

REIT Management Key To Creating Value

Thu, 15 Jul 2010 14:15:54 -0400

Joel Beam, lead portfolio manager with Forward Management, says listed REITs are in a very good position to overcome what has been a difficult stretch in the commercial real estate industry.

"Five or 10 years from now we will look back and see that the smartest and most adroit folks in the business out-competed others for the marginal tenant," Beam says, adding REITs have the wherewithal to do that.

Beam focuses on preferred shares of REITs versus common stock. He says his clients prefer the stronger income component generated by investing in preferred shares, albeit with a little less total return.

Among the attributes Beam looks at in evaluating REITs, he says that the fundamental driver of value is the assets themselves, the cash flow they generate.

"What makes us unique is that we have a special emphasis on management acumen and management's stewardship and history of capital allocation," Beam says. "We believe management can either jeopardize value or it can be responsible for extraordinary creation of value."

Planning for Retailer Failures

Wed, 14 Jul 2010 14:22:26 -0400

Steven Grimes, president and CEO of Inland Western Retail Real Estate Trust, says the company tried to mitigate the impact of retailer bankruptcies (by Lines n' Things and Circuit City, among others) by planning ahead and focusing its portfolio on those retailers looking to relocate or add space.

Inland Western has utilized joint ventures, notably with Canadian-based RioCan, to expand its portfolio and bolster its bottom line. Grimes says that while the company will continue to explore these opportunities, there is a limit.

"There does come a point where you are too large in the joint venture business. We don't want to become a fund manager," Grimes says. "We want to be very selective of the institutions we partner with. We feel it is a very good endorsement of our platform, and we focus on the longevity of the partnership."

Grimes says the most frequent question he has been hearing from investors centers around when the company will increase its dividend. Grimes says Inland Western was one of the first non-listed REITs to cut its dividend in response to the market downturn.

Favorable Hotel Opportunities

Wed, 14 Jul 2010 10:23:36 -0400

When Chesapeake Lodging Trust (NYSE: CHSP) went public in January 2010, President and CEO Jim Francis says he saw similar cyclical market dynamics at play as when his previous company, Highland Hospitality, came to market in 2003. Highland was sold in July 2007 at the peak of the market in terms of valuation and operating fundamentals.

Francis says with values coming down he saw this as an opportune time to benefit from the market and capitalize on what he foresees as a very strong market for the next several years.

Chesapeake has closed on two acquisitions and has a few more in the pipeline. Francis says he is bullish on the company's ability to deploy capital and over the next several years expects Chesapeake to grow to be the size of many of its peers in the $1.5 billion to $2 billion in assets range.

Overall, Francis says he has found the dynamics in the lodging market (both fundamentals and acquisition opportunities) to be better than he anticipated when the company went public. Francis adds that the company is targeting coastal markets where he sees the greatest opportunities.

Finding Value In Public & Private Markets

Tue, 13 Jul 2010 16:49:19 -0400

Jim Pelts, analyst with William Harris Investors, says his firm was able to navigate the difficult investment market in part by using the arbitrage between the public and private markets.

In terms of the public REIT market, Pelts says he currently sees the best value in the hotel sector. In the private sector, Pelts says he has been able to buy into some mezzanine loans at a discount.

The key issue in the second half of 2010, in Pelts view, is the availability of credit.

"That really gets to whether the banks are ready or if they are going to take another year to come to grips with the bad loans they have. Take the haircut or discount, so that the buyers can become interested," Pelts says.

In Retail, Value Reigns

Tue, 13 Jul 2010 16:47:16 -0400

Drew Alexander, president and CEO of Weingarten Realty Investors (NYSE: WRI), says fundamentals have begun to improve in the shopping center industry. Weingarten's occupancy now stands above 92 percent.

"Retailers in the value-added space, where Weingarten operates, are looking to expand," Alexander says.

Alexander, who has been in the business since 1978, says there have been many innovations in the business over the years, but certain things remain constant.

"The power of the grocery stores and the discount stores (for example)," Alexander says. "Value is very important. Increasingly the discount concepts are working."

Weingarten has never been an aggressive user of debt on the balance sheet, Alexander says, but having gone through the credit crisis makes reiterated the importance of that strategy and monitoring maturity schedules.

High Marks for REITs

Tue, 13 Jul 2010 09:48:38 -0400

Cydney Donnell, executive professor and director of real estate programs at Texas A&M University, describes herself as a "born again" REIT investor. After starting her real estate career 30 years ago on the private side of the business, Donnell says she reluctantly began investing in REITs later in her career.

"After I had time to look at the industry, I became completely convinced that REITs are the best way to invest in real estate," Donnell says.

Donnell says anybody who wants to invest in REITs can due to their liquidity. At the same time, she lauds their professional management and diversification of assets.

Despite growing awareness of REIT investment benefits, Donnell says investors are still not taking full advantage of what REITs have to offer, in part due to confusion over how problems in residential or commercial real estate is related to REIT stock prices.

"We have to fight a lot of negative headlines about real estate right now," Donnell says. "REITs are actually part of the solution and have done quite well over the last 10 and 20 years. That message still needs to get out."

Rating Recovery Prospects

Mon, 12 Jul 2010 15:50:17 -0400

Morningstar analyst Jason Ren spoke with REIT.com's Allen Kenney during REITWeek 2010 in Chicago. Among the topics discussed were Ren's view of a full recovery in commercial reale state.

"The operating fundamentals remain quite deteriorated due to the low employment rate," Ren said. "I don't know if you can characterize a recovery as full-on without an improvement in the job market."

Ren added that timing for an increase in acquisition activity remains uncertain.

"There is a massive amount of transactions that need to be refinanced, and in the absence of easy credit owners will either have to plug in more cash or let go of the properties," Ren said.

Public REITs are in the best position to acquire properties due to the strength of their balance sheets.

Formula for Success

Mon, 12 Jul 2010 14:12:29 -0400

When it comes to his company's success, Jeffrey Friedman, chairman, president and CEO of Associated Estates Realty Corporation (NYSE: AEC), says he relies on the formula that his company has created: "People plus Process plus Portfolio." According to Friedman, this formula and a solid balance sheet are allowing his company to grow. Friedman also says Associated Estates plans to continue building and developing new site in the future.

Small and Thriving

Fri, 09 Jul 2010 11:28:54 -0400

While many companies have struggled to find stability in the current recession, Amy Tait is able to talk about thriving in the last few years. As CEO of Broadstone Net Lease (NYSE: BNL), a private REIT, Tait shares with REIT.com's Matt Bechard some of the secrets of Broadstone's success.

"We tend to focus on smaller deals that the big companies ignore," Tait says. "There's not a lot of competition looking at deals in the $5 to $10 million range."

Working mainly with small, individual investors and focusing on recession resistant properties like medical office space, Tait explains that even with Broadstone's current success, their biggest challenge as a private REIT is to bulk up and add institutional investors.

One Year Down

Thu, 08 Jul 2010 14:48:44 -0400

A key achievement in his first year on the job has been lowering Cousins Properties Inc.’s (NYSE: CUZ) leverage, according to Larry Gellerstedt, the company’s president and CEO.

Gellerstedt notes Cousins Properties’ has taken “aggressive steps” to shore up its balance sheet in the last year, including an equity offering and a variety of cost-cutting measures. The moves have brought the company’s leverage ratio down from 70 percent to nearly 40 percent, with plans to de-leverage even further in the future.

New development is on hold, Gellerstedt says, and Cousins Properties has shifted its attention to a subdued transactions market.

“We’ve all been frustrated and surprised by two things,” Gellerstedt says. “One is how slow the opportunities have come to market, and, two, the amount of capital sitting on the sidelines in anticipation of those acquisitions.”

Zell Says 'Supply and Demand' Still Rules

Wed, 07 Jul 2010 15:28:47 -0400

During REITWeek 2010, REIT.com's Matt Bechard sat down with Sam Zell, chairman of Equity Group Investments, to reflect on the industry legend's experiences in the world of commercial real estate and REITs. and one of the most respected figures in the REIT world. Zell's take on the most important issue facing the industry was clear.

“The single biggest issue for the industry is supply and demand. As we have seen in previous periods, when there is no supply, real estate performs very well, almost without regard–within reason–to the economic conditions. When there is oversupply, it doesn’t matter what’s going on, real estate is going to suffer," he said.

Zell also offered his outlook on market dynamics for the next 18 months.

Renewable Resources and REITs

Wed, 07 Jul 2010 15:11:21 -0400

Lee Thomas, chairman, president and CEO of Rayonier Inc. (NYSE: RYN) sat down with REIT.com’s Allen Kenney during REITWeek 2010 to discuss the status of timber REITs and the challenges for dealing with both renewable resources and environmental regulators.

Thomas also discusses his forecast for the next three to five years in the timber market and how a strong rebound in the housing market will affect everything.

Data Centers Gain Ground

Wed, 07 Jul 2010 15:08:26 -0400

Investors and analysts are growing increasingly more comfortable with the nuances of data center REITs, according to Hossein Fateh, president and CEO of DuPont Fabros Technology (NYSE: DFT).

"The market is now starting to mature," Fateh says. He also notes that investors are coming to view data centers as their own asset class, rather than a "niche, specialty product." Fateh says data centers are now "one of the brightest spots" in the entire REIT industry.

Regarding new developments in the technology sector, Fateh says the rise of "cloud computing" -- the use of Internet-based software and shared resources for computing -- has had a positive impact on his company's business. For example, Rackspace Hosting recently signed two new agreements to lease space from DuPont Fabros.

Weathering the Credit Crisis

Wed, 07 Jul 2010 15:08:02 -0400

At REITWeek 2010 in Chicago, Matt Bechard of REIT.com sat down with Joey Agree, President & COO, Agree Realty Corporation to discuss that status of the net lease retail space and how his company is handling the current market.

"Net lease retail space has shown dramatic improvement," Agree said. "Cap rates have begun to compress and capital is flowing back into the market, both debt and equity."

Agree also discussed how the credit crisis impacted his companies' overall outlook and how his company generates growth.

Acquisitions in the Lodging Sector

Wed, 07 Jul 2010 14:12:59 -0400

Patrick Sholes, a lodging analyst with FBR Capital Markets sat down with REIT.com's Matt Bechard during REITWeek 2010 in Chicago to discuss how the lodging sector has faired since the downtown. Sholes, who maintains that lodging began turning around in May 2009, believes that the entire sector has moved into positive territory.

Sholes discusses both the wave of consolidation that he expects as the next part of the recovery cycle and contemplates with a weak summer travel season could mean for hotels and lodging's overall health.

REITs Poised to Capitalize

Wed, 07 Jul 2010 10:25:31 -0400

Even though the REIT model of commercial real estate ownership has yet to become a major force on a global scale, momentum for it should build in the coming years, according to Patrick Sumner, head of property equities with Henderson Global Investors.

Based on the trends in ownership of commercial real estate worldwide, REITs still have a ways to go, Sumner says. However, Sumner notes that he is anticipating a flow of REIT initial public offerngs in coming years, as banks and other property holders look to unload distressed assets. The general strength of their balance sheets puts REITs in position to capitalize on these opportunities, he says.

On a global scale, Sumner points out that the lack of oversupply of space should be cause for optimism among commercial real estate investors. The overall lack of financing should continue to constrain development, according to Sumner.

Market Snapshot July 2010

Tue, 06 Jul 2010 15:50:21 -0400

Despite a second straight month of negative returns in June, U.S. REITs continued to outpace the broader markets.

Brad Case, NAREIT's vice president of research and industry information, says that two consecutive months of losses don't negate the industry's generally positive performance this year. Longer term, REITs still continue to outperform the broader markets, according to Case.

Among the different industry sectors, Case notes that mortgage REITs had a particularly strong month. Additionally, he points out that REITs' volatility decreased in June, another positive sign for the industry.

Lack of New Supply Encouraging

Tue, 06 Jul 2010 09:55:56 -0400

Dean Frankel, senior portfolio manager with Urdang Securities, says the biggest reason for optimism when examining the U.S. commercial real estate market is the lack of supply.

"Given that in some sectors it takes six to 24 months to build a supply pipeline, that is a big positive," says Frankel, adding that it is also encouraging that fundamentals appear to have already bottomed.

On the flip side, the macro issues that are tied to job growth continue to raise concern, according to Frankel.

"We need a lot of jobs to come back before companies utilize their existing space, let alone need space," Frankel says.

Regarding specific sectors, Frankel says he favors the apartment sector, followed by the storage sector. Also, he says hotels should perform well.

Anchors Keep Retail Owners Afloat

Fri, 02 Jul 2010 10:54:25 -0400

Hap Stein, chairman & CEO of Regency Centers Corp. (NYSE: REG), spoke with REIT.com's Allen Kenney during REITWeek 2010.

Stein talked about the benefit his company gets specializing in grocery-anchored retail centers, and how a strong anchor can make all the difference.

"No sector is totally immune from downturns in the economy," Stein said. "I do think a strategy that focuses on daily necessities, convenience, service-oriented is going to be cycle-resistant."

Stein said his company focuses on centers in areas with strong demographics and strong anchor tenants.

He added that the company will continue to monitor the market for distressed acquisition opportunities, and is well positioned with 20 regional offices and strong tenant relationships to capitalize on available deals.

Going Public

Thu, 01 Jul 2010 10:13:06 -0400

Ronald Bohlert, director with NYSE Euronext, notes that REITs have been active in the IPO market in 2010. Of the 29 IPOs issued in 2010, five have been REITs, garnering nearly $1 billion in fresh capital. He also points out that nine more REITs have filed for IPOs, seeking more than $3 billion in total.

Bohlert also says investors benefit from the transparency of publicly traded commercial real estate securities, as well as from the "deep secondary market" available to quickly change positions in the market.

When the Sarbanes-Oxley legislation on corporate governance passed in the early 2000s, there was general concern that new corporate listings may shun the United States in favor of foreign markets, according to Bohlert, but those fears seem to have been assuaged. Looking ahead, Bohlert says non-traded REITs could see increased scrutiny from regulators.

New Securities and Exchange Commission regulations on trading have been put in place to protect investors, Bohlert says. However, the new Wall Street reform legislation isn't likely to have a big effect on actual trading, according to Bohlert.

"I don't see a tremendous impact on our day-to-day trading operations from the financial regulatory standpoint," he says.

Affordable Housing Demand Rising

Tue, 29 Jun 2010 12:59:17 -0400

Mike Landy, vice president of investments with UMH Properties (NYSE: UMH) and executive vice president of Monmouth Real Estate Investment Corp. (NYSE: MNR), discussed the impact the housing market collapse had on UMH and the affordable housing sector in general.

"UMH was actually hurt more from the housing bubble than from the correction," Landy said. "When housing was going gangbusters we were losing occupancy. Now that homeownership levels are coming back down we anticipate increased demand for affordable housing and to recapture occupancy lost to the housing bubble."

Landy added that with strong balance sheets both UMH and Monmouth are primed to make strategic acquisitions. However, he added finding those opportunities has been somewhat difficult.

Netting Major Retail Gains

Tue, 29 Jun 2010 10:47:30 -0400

Craig Macnab, chairman and CEO of National Retail Properties (NYSE: NNN), said the net-lease space is larger than the mall sector, even though it is perceived as a smaller niche.

"We like the fact that the net-lease space consists of smaller properties, which keeps a lot of the competition out," Macnab said during REITWeek 2010. "A lot of the large institutional players do not have an appetite for $2.5 million properties."

Macnab said retailers typically have higher profitability in free-standing locations than in a shopping center, which is leading to an outlook of continued, measured growth.

The leading trend going forward that will benefit National Retail Properties and REITs in general is an aging population that will be focused on income-oriented investments as they near retirement.

National Retail Properties' tagline is "The Dividends are Here." Macnab said his company is one of only 156 public companies to increase its dividend for 20 or more years, and he said the company will continue to focus on building that track record.

Strong Market for JV Deals

Tue, 29 Jun 2010 09:15:47 -0400

Michael Ashner, chairman and CEO of Winthrop Realty Trust (NYSE: FUR), spoke with REIT.com's Allen Kenney during REITWeek 2010 in Chicago.

Winthrop is actively engaged in joint ventures, and Ashner said he expects to see more interest in these types of deals going forward.

Ashner talked about his view that we are seeing a "tale of two markets" in commercial real estate. He said some values have begun to rise, particularly apartments and trophy retail and office, while others are showing no fundamental improvement.

Ashner said CMBS will come back because it is an efficient way to bring debt capital to market. He said it is coming back now, but he was uncertain of the speed and ultimate size of its return.

From his view, the primary focus in the second half of the year will be 2011 and whether or not fundamentals will recover and job growth will be in place.

Apartments Improving, Job Growth Needed

Mon, 28 Jun 2010 14:26:51 -0400

At REITWeek 2010, Equity Residential (NYSE: EQR) President and CEO David Neithercut spoke with REIT.com's Matt Bechard about the apartment sector and how his company has positioned itself for growth following the economic downturn.

"We found the bottom of our business in the middle of 2009, and saw our occupancy begin to grow in the fourth quarter of 2009," Neithercut said. "We've seen that continue. Our rents are up high single-digits since January 2010."

However, Neithercut said the company gave tenants a rent discount during the downturn and are beginning to recover some of that discount. It will take real, sustained job growth to truly push the needle, he said.

The supply/demand picture is also very strong for the sector, Neithercut said. He said this is in large part due to the echo boom generation leaving college and joining the apartment renter market and almost no new supply coming on the market.

Neithercut said potential reform of Fannie Mae and Freddie Mac have been crucial to the multifamily sector, but have been less vital to Equity Residential and other well-capitalized public REITs.

Public REITs Place to Invest

Mon, 28 Jun 2010 12:34:34 -0400

Steve Brown, portfolio manager for American Century Investments, spoke with REIT.com's Matt Bechard during REITWeek 2010 about the REIT capital markets and investment prospects going forward.

Brown said the capital markets remain healthy and that he expects looming debt maturities to be dealt with effectively by public REITs.

A positive trend he foresees taking shape in 2011 through 2013 is that demand for commercial real estate space will begin to far outweight the available supply, which has been reduced through the economic slowdown.

That has made Brown a believer that public REITs are superior to other forms of commercial real estate investment.

"They have better management teams, better assets, better balance sheets and better governance," Brown said. "That is the place to be going forward if you want to invest in real estate."

Chatham Lodging Deals

Mon, 28 Jun 2010 08:36:17 -0400

During REITWeek 2010, Chairman and CEO Jeffrey Fisher discussed the response his company, Chatham Lodging Trust (NYSE: CLDT), has found in the public market.

Fisher said the company's share price has managed to hold steady despite market disruptions.

Chatham has already made 10 acquisitions since going public, and Fisher said he expects more deals going forward.

"The deal market has been better than expected. We do have capital available to invest even beyond the deals we have made," Fisher said. "So we have some running room ahead."

Fisher said he looks at RevPAR as a key metric in the lodging sector, and he said that figure has risen for the first time in quite a while, according to recent Smith Travel data.

Reflecting on Lessons Learned in the Downturn

Fri, 25 Jun 2010 14:43:16 -0400

David Shulman, Professor from Baruch College, stopped by to speak with REIT.com’s Allen Kenney during REITWeek2010 in Chicago. Looking back on the how REIT’s faired during the economic downturn, Professor Shulman offered up a grade of ‘B+,’ based on the way REITs were able to re-equitize and stabilize in the face of everything that happened.

When talking about the biggest lessons learned by REITs during the downturn, Shulman commented on how the unforeseeable was the biggest change for everyone.

“They had too much leverage. They lost control of their capital structure,” Shulman said. “And the other thing is that there are a lot of ‘black swan’ events out there, which are low probability, high impact events that really surprise you. You have to be in some way prepared for that, even though it may cost you in the short run.”

London Poised for Significant Office Growth

Fri, 25 Jun 2010 12:26:24 -0400

During REITWeek2010 in Chicago, REIT.com’s Matt Bechard had the chance to sit down with Francis Salway, the Chief Executive for Land Securities Group to discuss the state of the office real estate market in the UK. When questioned about the level of optimism about the market in London, Salway was quick to confirm that it was well placed and that his company is ready to take advantage of it.

“Is the optimism about London office values based on good fundamentals? The answer is yes,” Salway said. “Developers didn’t over-develop in [2008, 2009]. We were the first to start development again in London. We’ve got the largest development pipeline in the city.”

Salway explained that one of the main things that has helped Land Securities was their change to a REIT in 2007. “Looking at the fundamentals, we save probably 80 Million a year in corporation tax which is a benefit for our shareholders and to the extent we still sell assets, we no longer pay capital gains tax, so there are real value creation benefits for shareholders. No tax.”

Employment Rate Primary Indicator of Recovery

Thu, 24 Jun 2010 15:31:28 -0400

Stuart Rothstein, CFO for Apollo Commercial sat down with REIT.com’s Matt Bechard during REITWeek2010 in Chicago recently and the subject of recovery dominated the conversation. Rothstein remarked that while he’d seen some recovery in asset pricing, anyone looking for a real economic recovery should be patient with real estate market, as it won’t be a driving force in aiding any stimulus. “We have a long way to go before we see a real recovery,” Rothstein said. “Real estate is a lagging indicator and until we start seeing meaningful employment growth in the country.” According to Rothstein, along with significant and sustained job growth, the other important factor that needed to improve for the sake of the real estate market is the need for recapitalization. He spoke about how the ‘pretend and extend’ mentality of the last few years wont’ cut it and how he’s hoping to see more assets find new homes stemming out of a new capital structure.

Opportunity for Investors in Retail and Hotel Sectors

Thu, 24 Jun 2010 15:31:09 -0400

During REITWeek2010, Rich Moore, an analyst with RBC Capital Markets, sat down with REIT.com’s Allen Kenney to discuss areas of the real estate market where he sees potential for growth in the second half of the year. According to Moore, investors should keep an eye on the retail space. He explained that in examining the retail space, investors should keep in mind the importance of the tenants and not just fixate on what the consumers are doing right now. “While the consumers may not be shopping yet, in fact, the retailers are out in force looking for new space,” Moore said.

Another sector that Moore expected a lot of movement out of in the coming months was the hotel space. “Clearly there’s a lot of money in the hotel space looking for hotels,” Moore said, “I think that product is going to come to market, either through the CMBS vehicle or through perhaps other finances that hadn’t worked out and those properties will come to market.”

Bifurcation in Lending Market

Wed, 23 Jun 2010 10:38:50 -0400

Merrie Frankel, senior credit officer with Moody's Investors Service, spoke with REIT.com's Allen Kenney during REITWeek 2010. She discussed how her approach to evaluating listed REITs has not changed, and added that REITs have done a solid job de-leveraging their balance sheets.

As for the lending market, Frankel said there remains a bifurcation based on the quality of the assets in question in terms of securing financing.

Self Storage Proves Resilient

Wed, 23 Jun 2010 09:23:30 -0400

Spencer Kirk, CEO of Extra Space Storage (NYSE: EXR), said that the self-storage sector once again proved its resiliency during the most recent economic downturn.

"Self storage was among the last property types to go into the recessions, and we think it will be among the first to come out," Kirk said.

Going forward, Kirk said overall economic activity and population growth are among the key factors facing the sector in the second half of 2010.

"Although it is going to be a long recovery, we are headed in the right direction," Kirk said.

Kirk added that he expects public self storage REITs to gain greater market share, up from the current 11 percent of properties they currently hold.

Industrial First to Recover

Tue, 22 Jun 2010 14:56:01 -0400

REIT industry veteran Glenn Mueller, professor at the University of Denver's Franklin L. Burns School of Real Estate and Construction management, spoke with REIT.com's Allen Kenney during REITWeek 2010 about economic factors facing the REIT industry.

Mueller said the chances of a double-dip recession have decreased in the first half of 2010.

Regarding specific real estate sectors, he said he expects growth in occupancy and rents in industrial in the second quarter. Following industrial, he expects recovery in retail, apartment and then office properties.

Industrial Outlook For Europe, China

Tue, 22 Jun 2010 14:40:16 -0400

Guy Jaquier, president of Europe & Asia and president of Private Capital for AMB Property Corporation (NYSE: AMB), spoke with REIT.com's Matt Bechard during REITWeek 2010.

Jaquier said the company's European operations have remained fairly stable, with demand growing slowly.

As for China, Jaquier points out the perceived real estate bubble exists in China's residential sector and not in the industrial space. He said rents are just now getting back to pre-economic crisis levels. The overall growth of the country's economy and the relatively low supply of industrial space bode well for future growth in the area, he said.

"The country of China has an entire Class-A warehouse stock about one-third of the total in Chicago," Jaquier said.

Jaquier said he continues to see private capital coming into commercial real estate, capital looking for 8-10 percent returns with limited risk. The investors looking for higher returns are currently targeting Brazil and China.

Rating REIT Corporate Governance

Mon, 21 Jun 2010 10:16:13 -0400

During REITWeek 2010, Steven Marks, managing director with Fitch Ratings, spoke to REIT.com about REIT corporate governance.

Marks said that Fitch views positively boards with strong management teams, in particular their ability to manage credit. Companies that fared well showed the ability to be proactive and access capital when needed.

Fitch recently upgraded its view on the REIT sector, Marks said. In part because the sector has "de-risked" and leverage has come down with good access to capital.

Marks said continuing weak fundamentals and fear of EU fallout remain concerns for the sector.