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REITs Proceed with Caution in Regards to Financing

08/15/2012 | By Allen Kenney

The nature of deal-making activity in the commercial real estate industry has changed since the Great Financial Crisis, according to Andrew Nicholas, head of global property securities with Colonial First State Global Asset Management.

That primarily means attitudes towards financing have evolved, according to Nicholas.

"I think what is important is that companies and REITs are more cautious in their approach to financing," he said during a REIT.com video interview filmed in New York during REITWeek 2012: NAREIT's Investor Forum. "They tend to take more care in their financing. Development doesn't stack up the way it used to in the past; acquisitions may, but again it depends on the cost of finance."

Additionally, Nicholas discussed some of the issues facing the REIT market in the second half of 2012. He said the bigger issues aren't company-specific, but instead lean more toward macro concerns that will potentially have an effect on the REIT market as a whole.

"I think most of the REITs have high-quality properties and are in good shape as far as operational earnings. The real issue remains on the macro uncertainties. For example, there are issues in Europe, perhaps the United States fiscal situation and perhaps a slowing economy in China," he said.

Nicholas also touched on foreign investment in commercial real estate in the United States. He said there will be an increase of foreign investments and anticipates that will continue into the future. A number of key factors are working in favor of boosting investment in commercial real estate in the United States, according to Nicholas.

"We are increasing foreign investment in the United Sates because the United Sates is always a safe haven," he said. "Look at the strength of U.S. bonds, the dollar re-strengthening and the strong real estate markets here."

Colonial First State Global Asset Management is based in Australia. The firm offers three investment products that focus on listed property securities.