Roth

WASHINGTON, DC-REITs spent 2009 working through their capital and liquidity issues and are poised now for growth according to Ernst & Young’s Global REIT Report “2010: Against All Odds.” The market can expect this growth to translate into more IPOs, as well as acquisitions, if not this year then next.

“REITs have proven to be a resilient vehicle despite a three-year period of volatility, E&Y’s Howard Roth, tells GlobeSt.com. “Now, as the industry moves out of its distressed period, REITs are clearly an ideal vehicle to recapitalize the CRE sector.” Roth said he sees a number of transaction opportunities were over-leveraged real estate owners would be able to drop their real estate into a REIT.

Also, he adds, larger REITs, having accessed the public debt and equity markets in 2009, have built themselves a sizable war chest to make acquisitions at significant discounts.

The only question is when this activity will start to happen. There are signs that REITs are starting to go public already and many analysts, besides Roth, expect to see a number of REIT IPOs, both here and abroad. The timing over straight acquisitions, though, is a trickier issue: Much depends, of course, on sellers putting properties on the market–something many have not been willing to do. But there is also the matter of REITs not being on anyone’s clock; essentially they can hold their accumulated capital until the price is truly right.

REITs will start to have greater opportunities to buy soon, Brad Case, senior economist at NAREIT tells GlobeSt.com. So far the government has all but made ‘pretend and extend’ an official policy to save the banking system from complete upheaval, he says, which was fine when the financial system was truly at risk, but it is now stabilized. “By 2012 I expect that loan maturities will become binding–and for many biting–and we will start to see a number of properties come to market by distressed sellers.”

It is for that reason, plus a few others, why Case does not believe the wave of acquisitions will be this year. “There will be a few–but we will see the majority in 2011-2012.”

Other factors that go into his prediction: property values are not going to improve before 2012 and troubled debt maturities will peak around that time. “We have seen some [maturities], but not many, because we are still early in the cycle.”

REITs, unlike funds or other equity pools raised for investors, can afford to wait for the time to be right, Case adds. “They don’t have to purchase a certain amount in, say, three years.” That means they will be very savvy buyers when properties do become available. It also provides a hint as to why many REITs did not find themselves in serious distress–with some obvious exceptions, of course–he said.