Real estate investment trusts have raised more than $10 billion in share sales since the start of the year. After taking a heavy battering in the public markets over the past 18 months, in which trusts globally lost around 65 percent of their value from the peak in 2007, REITs are now seeing a resurgence in their performance – and particularly with regard to their capital raising skills.
In the past quarter alone, 20 REITs, including some of the industry’s biggest names such as Simon Property Group and Vornado Realty Trust, have raised $7.1 billion in fresh capital to help them pay down debt and buy competitors’ assets.
The equity raises are something private market practitioners are watching closely.
REITs are considered leading indicators of the real estate markets, because the values of publicly traded trusts change more quickly than values in the private market.
And although private real estate values have not declined as much as their public cousins (value-added and opportunistic vehicles have lost just 20 percent and 37.9 percent in the past 12 months, according to the latest NCREIF/Townsend Fund indices), the recent activity by REITs has been noted as a positive sign for the industry as a whole.
The positive news rests firmly on REITs ability to raise new capital for their operations. At one real estate symposium in New York this week, that was seen as good news for everyone – public and private. “REITs have repriced enough and found a level where new money has been attracted into the market,” said one delegate.
Another added: “It shows there’s signs of life in the market.”
After months of little to no transactions and an almost freezing of the capital-raising markets, REITs ability to raise $10 billion – $7.1 billion in the past quarter alone – is good news for all concerned.
Of course, the sources of capital attracted to public real estate markets will not necessarily also be attracted to private funds. However, with fears the economic recovery could take much longer than originally anticipated, this week’s news has been received as a welcome shot in the arm.
REITs are not natural competitors to value-added and opportunistic private equity real estate players. More often they acquire the pristine properties sold by private equity real estate players. But the performance of property trusts could be an early indication that the real estate markets – while not yet having found bottom – are beginning to thaw.