10/18/2010 | By Allen Kenney
The REIT approach to real estate investment has benefited the entire commercial real estate industry through its transparency, according to Barden Gale, CEO of global real estate investment management firm J.E. Robert Companies.
Prior to the advent of REITs, real estate operators tended to have unsavory reputations, Gale says. The "sanitizing effect of disclosure" brought to the commercial real estate marketplace by REITs offered investors reason to believe the industry was on the up and up, according to Gale.
"All of a sudden, it became apparent that real estate could deliver truly exceptional returns with a steady cash flow and appreciation in the hands of professional management," Gale says.
Looking back at the 50 years in which REITs have been in existence in the United States, Gale singles out the privatization wave in the late 2000s as one of the most important events in the industry's history.
"There's a reason REITs should and do trade above NAV," he says. "It validated for us that the REIT operating model has a huge amount of intrinsic value."
Looking ahead, Gale says he is interested in seeing how companies that were taken private position themselves when they eventually do return to the public markets: "Getting Humpty Dumpty back together again and back into the market isn't as easy as people would like to think."
Gale predicts that REITs will be well positioned in the future as they begin to attract more capital from "non-dedicated" REIT investors going forward. That group includes institutional investors, such as pension funds, that normally prefer private investment options, according to Gale.
"I think you're going to see them use REITs more and more as tactical, if not strategic, investments," he says.