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Deloitte Analyst Sees Strong Interest in Non-traditional REITs

04/16/2014 | By Sarah Borchersen-Keto

Bob O’Brien, partner and U.S. and global real estate services leader at Deloitte & Touche, joined REIT.com for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.

O’Brien was asked to comment on the changing nature of real estate as witnessed within the REIT industry. O’Brien noted that a whole series of alternative or non-traditional REITs have come to the market over the past few years in segments including timber, cell towers and data centers.

“What we’ve seen is that it’s become a very efficient way to finance real estate… and investors have a great deal of interest in investing in it. There’s low correlation with those types of assets and the S&P 500—even in some cases with the traditional REIT segments—and so it has gotten traction. People have been very creative in some of the things they are bringing to market,” O’Brien observed.

O’Brien was also asked whether there are elements within current tax legislation proposals that could impact non-traditional REITs. He explained that a proposal from the House Ways and Means Committee would limit the types of entities that could become REITs. “They are defining real estate assets as assets that have depreciable lives of 27-and-a-half years or more, and some of these non-traditional REITs likely would not qualify,” O’Brien said.

Turning to the outlook for mergers and acquisitions (M&A) activity, O’Brien noted that “given the availability of capital and some of the benefits of scale, we haven’t seen the level of M&A activity that we would expect.” Companies have been focusing more on their core strategies and getting their core portfolios rationalized, O’Brien said.

“In recent months we’ve seen more spinoffs than announced M&A activity, but we’re optimistic,” he said.

O’Brien also commented on under-the-radar trends that are impacting the REIT industry.

“I think what we’re seeing is real estate enjoying the benefits of the next stage of technology. We’re seeing that in business intelligence and data analytics. We’re seeing management teams drawing real insights… out of their systems using some of these new tools,” he said.

O’Brien also pointed to the increasing use of mobile technology.

“We’re seeing some really forward-looking REITs using mobile technology to more closely connect to their tenants, as well as the customers and employees of those tenants,” he said.