REIT Valuation Levels Likely to Result in More Go-Private Transactions

Hans Nordby, managing director of CoStar Portfolio Strategy, was a guest on the latest edition of Nareit’s REIT Report podcast.

Nordby discussed some of the main factors influencing REIT valuations and what the sharp disconnect between public and private market real estate values could mean going forward.

“Either the public market is underpriced or privately-owned real estate is overpriced. It will be very interesting to see over the next couple of years which of these is wrong,” Nordby said.

The disconnect is nothing new, according to Nordby, noting that public-private valuation gaps occurred in 2007 and 2008, and to a lesser extent in the late 1990s.

As for property types, the biggest valuation gaps are occurring in the retail and office segments, Nordby said.

All in all, current valuation trends are likely to result in more public to private transactions this year, according to Nordby.

“There is an ocean of dry powder available amongst private equity funds, sovereign wealth funds, and institutional investors for investment in real estate,” Nordby said. As for the most likely go-private candidates, Nordby pointed to REITs that are either “complicated stories” or fairly small.