06/16/2014 | By Mitch Irzinski
Phillip Owens, vice president with Green Street Advisors’ Advisory and Consulting Team, joined REIT.com for a video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.
Owens discussed the trend of non-traditional real estate companies seeking to unlock the value of their real estate.
“I think what you’re seeing in the marketplace today is a real overlap between seller and buyer motivations,” he said. “From a seller’s perspective, we’re seeing operating companies that have seen their real estate assets appreciate meaningfully in recent years, trying to monetize that value and deploy it back into their core operating business to achieve greater returns. What we’re seeing from the buyer’s perspective is a strong interest in buying these types of assets. However, there’s about four times the capital in the space today, as there are deals to go around.”
One such move was the spinning out of the Red Lobster real estate portfolio in a sale to American Reality Capital. Owens was asked what that transaction says about the larger trend in the market.
“I think what it means for the marketplace is that everyone’s expectations should be reset,” he said. “Activist investors will see that this type of deal can be done, and we’re likely to see more activity in the space. While we don’t think there will be a tsunami of these deals coming down the pipeline, the likelihood of seeing more of them is probably higher than it was six months ago.”
Owens went on to describe the characteristics that might increase the likelihood of getting a deal like that done.
“I think number one is credit quality,” he said. “Great credit can trump poor real estate, but great real estate cannot trump poor credit. Number two would be the fungibility of real estate—the ability to re-use the assets. These [acquiring] companies are often thinking about what they’re going to do if a tenant were to vacate a property. And, I think third is diversification. Diversification is important to these investors because they’re looking for low volatility cash flow streams, and they view diversification as helping them get there.”