REITs Do More Building Than Buying

Boston Properties’ forthcoming Salesforce Tower in San Francisco; the REIT continues to build but is becoming more conservative about pre-leasing requirements.

NEW YORK CITY—By and large, REITs have become net sellers as the current real estate cycle has matured. “Current low cap rates make it a good time to sell, and many REITs are culling underperforming assets,” writes Susan Persin, director of research at Trepp LLC, in a TreppTalk article posted this past Friday. “Selling at high valuations allows REITs to maximize revenue, improve the overall quality of their portfolios and reshape their portfolios to enhance future profitability.”

However, in a report summing up Green Street Advisors’ impressions of this year’s edition of REITWeek, the annual conference in New York City sponsored each June by NAREIT, managing director Cedrik Lachance sees other factors mitigating the positive selling environment. “Four sectors sport an unfavorable cost of capital”—namely, apartment, lodging, shopping mall and office—“and the companies often have become net sellers, although many can’t seem to stop developing, thus greatly hurting the benefits they would get from shrinking their balance sheets even more,” writes Lachance.