12/06/2012 | by
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Outlook for IPOs Shrinking

Gil Menna, partner with the law firm Goodwin Procter, joined REIT.com for a video interview last month at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.

Menna offered his outlook on initial public offerings (IPOs) of REITs.

"We have some REITs that are in registration with the (Securities and Exchange Commission) now that have been there for quite some time waiting for the market to 'rebound.' There are other issues that are relatively new and are working their way through the SEC process that haven't been languishing in registration," Menna said. "I think the market is so volatile that it's anyone's guess, to be quite frank. Having said that, there are recent issues that were fabulously done. We just don't see a big backlog. We're not going to see a lot of IPO activity, in my judgment."

In contrast, transaction volume should remain high, according to Menna.

"I think transaction volume has certainly picked up. There's no doubt about that," he said. "Foreign investors were significant investors in the U.S. this year. I think you're likely to see some more of that as well."

Menna said he expects that cross-border investment in REITs will also continue to grow.

"I think foreign investors and sovereign wealth funds are certainly investing in U.S. real estate. I think some of the larger REIT IPOs that might come to market, with the larger portfolios that everyone has been talking about, may certainly try to attract sovereign wealth fund capital into those investments or even consider doing transactions with those participants investing shoulder to shoulder with the public equity markets," Menna said. "I don't think sovereign wealth funds as a whole "“ notwithstanding the tax advantages of investing in a REIT and the liquidity associated with them "“ are focused solely on REITs. I think they're focused on U.S. real estate investments."

Menna described the market for commercial mortgage-backed securities (CMBS) as "functioning," but not "fully functioning." He said the market was unlikely to return to the size it had reached prior to the financial crisis.