07/16/2013 | by
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Banker Sees Overcorrection in REIT Market

Seth Weintrob, managing director at Morgan Stanley, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Weintrob was asked for his views the number of REIT deals that have transpired in 2013. He said the volume of mergers and acquisitions has lived up to his expectations halfway through the year.

“If you think about some of the key themes when you think about REIT M&A, one was a lot of the private platforms that were taken private in the 2005 to 2007 wave that are re-evaluating things,” Weintrob said. “I think the second theme, frankly, with certain sectors that traded at big premiums, the underlying value of assets or where there was some sort of multiple separation or arbitrage, we’re seeing that play out a lot in the triple-net space. The other was the non-listed REIT space. There is a fair amount of overlap between that and the net lease sector, so I think there have been some of those trends. But I also think that with IPO market, frankly, getting a little bit better, we’ve seen a little bit more on the listing and IPO activity from some of those companies, rather than M&A.”

Weintrob also discussed how the actions of the Federal Reserve are impacting REITs’ cost of capital.

“There’s no question that the Fed’s policies have benefited all rate-sensitive sectors,” he said. “I think real estate is probably at the foremost in terms of the benefit. That said, I think it has actually impacted real estate generally, not just REITs, per se. You’re seeing, frankly, the private capital in the space benefiting from low interest rates, lowering their cost of capital.”

Weintrob noted that the hints from the Fed regarding plans to taper off its quantitative easing policies have caused, in his view, an “overcorrection” in the REIT market.

“If we see rates go up slowly but steadily over time, I actually think the sector can handle that to some extent,” he said. “I think that’s going to be more of a sign of better operating fundamentals to come. I think large moves at one point in time or another are never a good thing, and many people are obviously very worried about that in thinking about how the Fed messages its policy going forward.”