February 11, 2010

REITs: Where Are The Good Deals

Real-estate investment trusts sold $24 billion in new stock last year, raising to profit from commercial-property distress by picking up high-quality real estate at bargain prices. But they are having trouble finding deals. Tishman Spier, recently handed the keys back to the banks. Peter Cooper village and Stuyvesant Town comprise 56,000 units. Another 2.6 billion dollar deal was handed back to Barclays and they have no intention of putting these properties up at bargain basement prices. They are looking past the problem and are waiting for better days.

So, REITs bought only $4.6 billion of property in 2009, a 67% decline from the previous year, according to research firm Real Capital Analytics. They cant get prime properties on the cheap. After dumping so much residential property on the market, driving prices down and gathering much evil eye for doing that, they learned a lesson.


Commercial property prices some 35% to 50% off their peaks, most banks are keeping their best assets off the market. Many REIT expected the number of distressed buildings forced to market to surge as owners defaulted and lenders foreclosed. But while the number of problem loans has been growing, so far this hasn't translated into many fire sales. Finally there are some signs of an end to the equity drubbing taken by commercial real-estate owners.

From a cash-flow perspective, REITs still face declining rents and occupancy levels and equity evaporation. The REITs raised so much money waiting for the banks to hand off quality properties on the cheap and instead, they are going to manage and hold property. This may not be the generational opportunity the REITs expected. but I think it speaks volumes about how the world has changed for the better. Suddenly, there is a view that better times are coming.

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