Fresh Capital Should Yield More Deals

As capital flows into REITs, they're preparing to "start playing offense again," according to Scott Schaevitz, chairman of Americas real estate investment banking with Barclays Capital.

In a video interview at REITWise 2012®: NAREIT's Law, Accounting & Finance Conference in Hollywood, Fla., Schaevitz offered his perspective on the state of the capital markets for REITs. The combination of an improving macroeconomic environment and strong real estate fundamentals has attracted new investment in the industry this year.

"The flow of funds has been very strong," Schaevitz said.

Issuers have had access to cheap capital, enabling REITs to bolster their war chests. Schaevitz noted that Barclays had served as a bookrunner on a preferred equity deal in March for a mortgage REIT, the first of its kind of 2007. In total, REITs have acquired $18 billion in fresh capital, including $5 billion in equity.

"It's allowing REITs to issue, grow their companies, grow their liquidity and start playing offense again," he said.

Whether or not that can continue depends on the broader economy, according to Schaevitz, who singled out the situation with the European economy and the job growth in the United States as two major factors.

Schaevitz indicated that he does expect deal activity to pick up steam. However, don't expect to see the same trend of public companies going private that was so prevalent in 2006 and 2007.

"There's a good balance of asset value between Wall Street and Main Street," he said.
Instead, look for smaller transactions.

"There's a lot of real estate coming to market, between real estate owned by banks or special servicers or private owners who have held for the life cycle," Schaevitz said. "As that property starts to come loose, we're seeing bigger deals. There will still be small deals, as the lenders are out there to help finance small private buyers."

Schaevitz also said he expects cross-border deal flow to increase: I think a big change this year will be the big increase of international M&A. We're already seeing cross-border activity today with Europe, with Australia. We're seeing folks today become more comfortable expanding the barriers."