REIT Market Activity Fueled by Valuations and Tax Reform, PwC Partner Says

Tom Wilkin, partner, U.S. REIT leader at PwC, participated in a video interview at Nareit's REITwise: 2018 Law, Accounting & Finance Conference in Hollywood, Florida.

Wilkin believes that the real estate cycle is in the later innings. He pointed to a recent softening in valuations due to rising interest rates, which has pushed cap rates higher. Any potential positive impact from tax reform and rising rents hasn’t yet offset this softening. “Those two elements coupled, once they start actually hitting, will reverse and offset some of the headwinds from the rising rates,” he said.

Wilkin said he sees a lot of market activity, in part due to valuations and tax reform. He expects public to private transactions to continue as big funds try to take advantage of arbitrage opportunities.

Meanwhile, REITs are being formed as a result of spin offs, Wilkin observed. He also sees scope for initial public offerings (IPOs) in non-traditional property types and an increase in “quasi-public” non-traded REITs.

Wilkin doesn’t anticipate much direct impact on REITs due to changes in lease accounting standards, except for some marginal issues such as how to structure leases. He expects more of an impact from tax reform. The interest rate cap that results from tax reform could cause users of real estate to reconsider monetization transactions such as spinning off assets and leasing them back.