GlobeSt.com: First, just to have it said, Liz, what's the mission of the Federation?

Peace: We're here to protect and promote the interests of the commercial-property industry. Basically that means looking after the interests of all the companies, funds and institutions that have an interest in investing or owning or supporting commercial property. It includes everything except house builders.

GlobeSt.com: Catch us up on the progress the UK regime has made since January.

Peace: It was pretty much as we predicted, that at the first go the large property companies would convert. On the first of January there were nine that converted. There were also two slightly unusual ones; one that does smaller accommodations for start-up businesses and another that deals in surgical space. Subsequently, other companies have joined. These include a self-storage REIT, three other commercial property companies and two retail REITs. I predicted that we'd have 20 by the end of 2007, and the way we're going I think we will. Who knows what will pop out of the woodwork?

GlobeSt.com: I talked with the folks of EPRA [the European Public Real Estate Association] about the differences between European REIT growth and US REIT privatization. They talked about different levels of maturity. What's your take?

Peace: It's quite difficult to draw absolute parallels since we got our REITs at very different times. First, I agree, it's just a different phase of the market. Second, there's just so much money out there looking for things to buy. Interestingly enough, you might recall, we went through a big phase of companies being taken private in the late 1990s because our public companies were trading at this big discount to net asset value. Raiders with private money came along, buying them up, selling them off and making an absolute killing. So we had quite a bit of that even before we got REITs.

GlobeSt.com: What does the global investment climate look like now?

Peace: First, the UK is a hugely attractive place to own property because we have very stable landlord/tenant relationships. If you have someone in there on a 55-year lease, that's a pretty good covenant. Most nationalities, it would appear, are buying in London--the Arabs, the Australians. You name it, they're over there. What I find interesting is the price they're all paying. Look at Metrovacesa, the Spanish company that just bought the HSBC Tower in Canary Wharf for $2.3 billion. There is a perception that the world has gone a little mad, and everyone is saying that it can't last.

GlobeSt.com: And has the world gone a little mad?

Peace: Yes, I think the world has gone a little mad in terms of the prices being paid. Looking at some of the deals, the HSBC deal seems to be a huge amount of money to pay for a relatively low return. But what haven't gone mad are rental levels, which are still fairly modest, except in the retail sector. They've barely risen in real terms over the past 30 years once you take out inflation.

GlobeSt.com: You said at REITWeek that there was some difficulty getting multifamily REITs off the ground. What's the problem?

Peace: If you're a private investor or developer, the problem is the cost of land use, and the fact that planning permission is extremely difficult to get. You're required to allocate a certain proportion of your development to social housing, effectively giving it to a housing association. By the time you take all of these costs into account, there's no way you can get a return from the rental that makes it worth doing. You have high capital cost and low rental income. You might as well put your money into national savings certificate. Is it worth the risk?

GlobeSt.com: But wasn't there a residential REIT about to form?

Peace: The best prospect, Invista, has announced that it is not going to convert. I suspect that the market fundamentals just don't look attractive enough.

GlobeSt.com: So what's the outlook for apartment REITs and, for that matter, for REITs in the UK in general?

Peace: Let's do the latter first, since that's easier. There's been a lot of doom and gloom about the REIT market. People are quick to write of the fact that there aren't as many REITs as they thought and that the returns don't look terribly promising. But people are being silly about this. We've had REITs for six months. It's too soon to draw conclusions. Part of the problem is that the government made so many different announcements that the property companies' share prices were going up like mad after last Easter. Effectively, we took the profit before they became REITs. Now people are criticizing REITs, but if you look at the Land Securities share price, for instance, you'd see they've done extremely well over the past 12 months. This latest blip is partly because it was doing so jolly well last year. REITs are meant to be good, solid income-producing vehicles. So, on the whole, we're doing pretty much as we expected. Going forward, I expect not spectacular but steady growth and expect in the next few months that we'll see more unusual REITs coming forward, more interesting ones like in the hospitality and self-storage sectors.

GlobeSt.com: And residential?

Peace: It will continue to be problematic for all the reasons I said. We're trying to talk to our government about what we can do to tweak the residential REIT framework to make it more attractive. Would they be helped if we had an unlisted form of REIT? Could we make it easier for new REITs to form? It's easy to convert an existing quoted company. It's far more of a hassle to start one from scratch.

GlobeSt.com: So if we talk a year from now?

Peace: Our government moves at a glacial pace. Part of the problem is that you have only one bite of the legislative cherry each year. We only have one finance bill each year. It is possible but I wouldn't say it's highly likely.