REITs Rising in Foreign Jurisdictions

MIAMI—What are the challenges for REITs? What about the advantages? We caught up with Jacob Farquharson, an attorney in the Capital Markets practice in Clifford Chance's New York Office, to get his take on these and other questions. Be sure to check out part one of this exclusive interview, Are REITs Too Volatile or Not?, if you missed it.

GlobeSt.com: What challenges do you see for commercial REITs?

Farquharson: The primary challenges for commercial REITs will be managing their cost of financing and being disciplined in acquisitions.

GlobeSt.com: What advantages do you see for commercial REITs?

Farquharson: A strengthened economy will benefit commercial REITs as increased consumer spending power will translate into more favorable leases.

GlobeSt.com: Are you seeing a lot of new REITs forming now or are they declining?

Farquharson: We are seeing a number of new REITs forming now, including traditional real estate companies looking to monetize their portfolio, companies looking for a more capital light model and companies with "alternative" real estate assets. A number of PE firms are looking to monetize their portfolios through REIT IPOs.

We are also seeing a significant increase in REITs in foreign jurisdictions. For example, we have worked on six offerings for Mexican REITs (or FIBRAs) raising over $3.5 billion of equity capital in the past two years, with several more in Mexican REIT IPOs in the pipeline.

GlobeSt.com: What's the long-term of picture for REITs? What lies ahead?

Farquharson: The long-term picture for REITs is solid. Real estate is a cornerstone of any investment portfolio, and REITs are the most efficient way to gain exposure to real estate. In terms of what lies ahead, I think we will see which management teams are able to navigate through a changing interest rate environment.

It will not be easy, but many management teams have experienced previous cycles and will be up to the task. I also believe we will see the REIT product continue to evolve and be expanded to non-traditional real estate assets and foreign jurisdictions.