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REITs Ready to Act on Opportunities
12/9/2011 | By Matt Bechard
REITs have generally put themselves in a strong position to be opportunistic in the commercial real estate market, according to Gil Menna, partner with Goodwin Procter LLP.

In a video interview with REIT.com at REITWorld 2011: NAREIT’s Annual Convention For All Things REIT in Dallas at the Hilton Anatole hotel, Menna discussed the current state of the capital markets for commercial real estate. As more debt comes due, REITs should have a chance to be active buyers in cases of distress, according to Menna.

REITs are “incredibly well-positioned to take advantage of whatever stress might exist in the marketplace,” Menna said.

Companies looking to go public as REITs are finding roadblocks in the capital markets, Menna noted. Even companies presenting strong investment potential are having trouble securing IPO funding, he said.

“I think the new issues are the harder piece of the puzzle, because the IPO market is closed,” he said. “There are a lot of companies in registration that deserve, in my judgment, to have access to the public equity markets and would be very competitive.”

Existing REITs aren’t having much trouble tapping the equity markets, according to Menna. However, he said, few are in need of significant amounts of equity capital at the moment. He attributed their favorable cost of capital in the current market to REITs’ efforts to clean up their capitalization structures following the financial crisis.

“REITs don’t have to raise too much equity capital, unless it’s for a pending transaction, because they’ve right-sized their balance sheets on a relative basis,” he said.

Instead of traditional equity offerings, Menna said more REITs are pursuing at-the-market (ATM) equity offerings.

“Almost all mature REITs have ATM programs,” he said. “They’re raising enough capital on a regular basis that it’s causing the right side of their balance sheets to come down, improving their debt-to-capitalization ratios.”
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