REITs Could Benefit Infrastructure Projects

5/11/2011 | By Allen Kenney

Speaking prior to the Georgetown University McDonough School of Business and NAREIT Spring 2011 Real Estate Luminary Series, Marty Cohen, co-chairman and co-CEO of Cohen & Steers, said he is pleased with the steps REITs have taken following the liquidity crisis to delever and strengthen their balance sheets.

"Interestingly, it's not a bad time to use leverage because interest rates are low and REITs have good access to capital," Cohen said. "But it has got to be long term in nature, and that is really what was a problem for companies in 2008 and 2009. They had short-term debts coming due that they couldn't repay."

Cohen added that the returns you can get on leveraged properties is pretty good in the current market.

The REIT industry went through a major consolidation phase in 2006 and 2007, when a number of large players were taken private, Cohen said. However, he said he does not expect to see anything along those lines this time around (the AMB-ProLogis merger a notable exception).

"One area that I think might be ripe for a little bit of consolidation would be the mortgage REIT industry," Cohen said. "We have had a number of offerings of mortgage REITs, not all of them have been successful and not all of them have a business model that we think has got long-term perseverance."

The REIT approach to real estate investment continues to be applied to a wide range of sectors, for example data centers and timberlands. Cohen said specialty sectors are often very well accommodated by REITs, but he said he does not see any sectors right now that are primed for REITs to become involved.

"What I think might be interesting is a lot of infrastructure properties could be well accommodated in a REIT format," Cohen said. "After all, it's buildings and improvements that generate income and generate lease income. I think some very large infrastructure projects could benefit from REITs. There is a tremendous amount of capital required to build infrastructure projects."