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IPO Market More Challenging for REITs

04/30/2012 | By Matthew Bechard

Entering the public markets today is more challenging for companies than it has been in the past, according to Mark Van Deusen, partner with Hunton & Williams LLP.

In a video interview last month with REIT.com at REITWise 2012: NAREIT's Law, Accounting & Finance Conference in Hollywood, Fla., Van Deusen spoke about signs that may signify growth in the REIT market, as well as regulatory issues impacting REITs.

"What I'm looking for is to see a revival in the market for IPOs. I think over the past couple of years, there's been a lot of companies that have tried to go public with some fairly compelling stories," he said. "But there is not really a market for small cap REITs to go public. It's really not that kind of environment."

Because the IPO market is more challenging to break into, Van Deusen said it leaves few choices for companies that have reached a critical stage in their growth.

"Tapping into public markets is much harder, and it's much more expensive than it used to be," he said,.

This leaves companies trying to find alternative strategies that range from merging with another company or trying to find capital through other means, which can mean non-U.S. or institutional capital, according to Van Deusen.

Van Deusen said he hopes to see the IPO market improve so that new REITs will be able to come on board, even in different asset classes. Van Deusen added that new asset classes, such as single-family REITs and solar REITs, could emerge.

He pointed out that pending legislation could have a major impact on the REIT industry. Van Deusen said the new regulations could ease the compliance requirements of Sarbanes-Oxley Act and Dodd-Frank Act. If so, companies planning an IPO could have an easier time, according to Van Deusen.

"Those requirements are extremely expensive for a young company. If we reduced down some of those impediments, it would open up the capital markets," he said.