REITs Thriving as Recovery Nears

With a strong recovery in the commercial real estate market seemingly right around the corner, REITs are already enjoying a prosperous rebound, according to an analysis from Deloitte Real Estate Services.

Deloitte noted that even though commercial market fundamentals are showing signs of gradual improvement, REITs have already bounced back. Consequently, REITs are positioning themselves to capitalize on opportunities.

“Return on investment for REITs has outperformed the competition recently, and firms are taking advantage of the spotlight by raising funds, which could eventually lead to increased acquisition activity for the segment,” the report said.

REITs also could gain favor with investors seeking to hedge against volatility in the broader markets, according to Deloitte, citing their outperformance of measures such as the S&P 500 and Russell 2000. Deloitte attributed the industry’s strong showing to REIT management teams.

“The recent REIT rally has been driven, in part, by investors’ realization that REITs took on far less debt than private real estate investors during the peak-to-trough period of 2007 to 2009, and sold at the top of the market, while private equity investors continued to buy,” the report said. “Conversely, when the market plummeted, REITs began to acquire properties from highly leveraged investors at deeply discounted prices.”

Looking ahead, Deloitte listed a host of attributes that could attract investors to REITs as the economy continues its recovery.

“In addition to providing dividends to investors, REITs include hard assets, and as such traditionally have been perceived as safe havens during economic downturns and a potential hedge against inflation,” Deloitte said. “As recent results indicate, REITs also frequently have a low correlation to conventional assets, such as stocks and bonds. In addition, REITs offer the advantage of professional management, and provide portfolio diversification.”

REITs Ramping Up Growth Strategies

REIT.com's video team had the opportunity to sit down with a number of prominent commercial real estate industry leaders during REITWorld 2010: NAREIT's Annual Convention for All Things REIT®. With market fundamentals improving, a nearly universal theme of the conversations was growth in 2011 and beyond.

Inland Real Estate Corporation (NYSE: IRC) President and CEO Mark Zalatoris said addressing space left vacant by bankrupt retailers will serve his company well in 2011. ''We've back-filled all those spaces, and we are going to see the economic impact of that re-tenanting coming online in 2011,'' he said. Inland also entered into a joint venture with Dutch pension fund PGGM to acquire around 12 shopping centers.

Acquisitions are also key to growth at Home Properties, Inc., said President and CEO Ed Pettinella. ''We will likely wind up the year around $400 million in acquisitions, and we hope to do another $250 million to $400 million in deals in 2011,'' he said.

Corporate Office Properties Trust (NYSE: OFC) has ramped up its acquisition efforts so far in 2010, according to CEO Rand Griffin. He said the company's goal at the beginning of the year was to complete $300 million in acquisitions and they are nearing that total. COPT is also one of the REITs once again focusing on growth through new development.