A trend that began slowly several years ago has started to gainmomentum. Increasingly, businesses with a substantial amount ofreal estate have been approaching the IRS for a private letterruling, granting them permission to realign their businesses undera REIT structure.
The primary driver behind this is simple: demand is high intoday's economy for income-producing assets and, as a result, themarket has shown REITs considerable preferential treatment becauseof their reliable income stream. Looking at the S&P 500, forexample, REITs have outperformed the index for the last five years.Also consider that pension funds and endowments, which havehistorically contributed 5% to 7% of their capital tonon-traditional assets, are now allotting closer to 7% to 10% tothese investments.
In today's business climate, where companies are considering alloptions for increasing value to their shareholders, many of thosethat own a significant amount of property are exploring the processof REIT conversion. And in almost every case where companies haveconverted their real estate holdings to REITs, the market hasrewarded them for it. Indeed, where companies have looked torestructure as REITs, their stock prices have gotten a 20% to 35%bump merely on the announcement.
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Howard Roth
As the Global Real Estate Leader, Howard coordinates the firm's activities across a broad array of related services around the world. EY has the largest integrated real estate practice of any Big Four firm, with more than 7,500 professionals around the world providing audit, tax, transaction and advisory services to owners, builders, lenders and users of real estate. EY serves more than 4,000 real estate clients throughout the world. Howard brings more than three decades of experience in the real estate industry. He has worked extensively with major real estate private equity funds, domestic and offshore real estate investment trusts and large public homebuilders, as well as numerous construction and hospitality companies. His credentials include a BA in Accounting from Hofstra University. He is a member of the American Institute of Certified Public Accountants and New York, New Jersey and Connecticut Society of CPAs, has been a columnist for several major industry publications and is frequently a speaker at key real estate industry events.
