Green Street's Kirby Sees Value in Latest REIT Spinoffs
04/25/2014 | by Allen Kenney

Mike Kirby, chairman and director of research at Green Street Advisors, joined for a video interview at the 2014 Real Estate Luminaries Series event on April 23 at Georgetown University.

Kirby discussed his views on the growing lines of business electing to operate as REITs.

“Historically, the REIT space has been a place where non-traditional property types have incubated their way into becoming core real estate,” Kirby said. “Many years ago, health care real estate wasn’t even viewed as real estate by a lot of real estate market participants. Self-storage, factory outlets, manufactured housing—all fall under that same heading.”

Kirby pointed out that sectors that have been incorporated into the REIT universe have been “wildly successful.” He indicated that he’s skeptical that some of the new entrants will enjoy the same level of success. “Some of this is a bit of a square peg in a round hole,” he said.

“It’s not really so much that it’s not real estate,” he said. “It’s more the structure of the investment.”

However, Kirby noted that he does expect some new property sectors will eventually gain traction as REITs.

Kirby also addressed the trend towards REITs spinning off parts of their businesses. “We’re generally fans of the spinoffs,” Kirby commented.

Despite the costs of being a small REIT, there are benefits in being focused, according to Kirby.

“In many cases, the assets that are being spun off are assets that could use some loving attention,” he said. “With the new management teams that are being hired to run these spinoffs, you’ll see that.”

Kirby described the process as a “win-win” because the spinoffs allow the parent company to focus on its primary business and avoid being distracted by the other properties.

“Meanwhile, the new management teams at the [spinoffs] have a chance to really do what’s necessary and focus attention on those assets that are spun out,” he said.

Kirby was asked what his career in real estate has taught him about the REIT business model.

“As an industry, we are way too focused on growth,” Kirby observed. “The best thing a REIT can do is offer ‘real estate returns plus.’ That doesn’t necessarily entail developing. It doesn’t necessarily entail getting huge through acquisitions. You can do that by merely listening to the capital allocation signals that the public market sends you.”