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Real Estate Investment Trusts are down, but not out
REIT index slides, but fares better than the Dow, commercial real estate investments still up...
by
Burl Gilyard Staff Writer March
7, 2008 found at finance-commerce.com/
Mark Kolsrud about commercial real estate
A few years ago, real estate investment trusts (REITs) were the darlings of
Wall Street. But in today’s tough economy, REIT stocks are feeling the same
pain as other stocks.
Fresh statistics from the National Association of Real Estate Investment Trusts
(NAREIT), a Washington D.C.-based trade organization, show that for the first
two months of 2008, REIT stocks have declined 4.1 percent.
But despite those losses, publicly traded REITs are still faring better this
year than other indexes amid the turbulent economic climate, according to the
report.
During the January-February period, NAREIT noted that the Dow Jones Industrial
Average was down 7.5 percent, the Standard & Poor’s 500 slid 9.1 percent
and the NASDAQ Composite index was off 14.4 percent.
REITs are essentially real estate mutual funds, allowing small investors to buy
a stake in large portfolios of commercial properties. Congress created REITs in
1960;
Almost all property types showed declines during the two-month, January-February
period. REITs focusing on industrial properties dropped 12.5 percent, retail
REITs were off 6.5 percent and office REITs dipped 5.8 percent. In addition,
lodging REITs declined 4.9 percent and health care REITs slid 7.3 percent.
The challenges facing commercial property mirror the tottering state of the
current economy. For example, a weak job market means companies don’t need to
lease new office space, and declines in consumer spending mean challenging times
for retailers. On the investment side, prices investors pay for commercial
properties have fallen.
Mark Kolsrud, a senior vice president with Colliers Turley Martin Tucker,
acknowledges some challenges facing the trusts as economic winds have shifted.
“The REIT is the publicly traded version of real estate. You don’t have to
buy the building; you can buy a share of stock,” Kolsrud said. But the tough
market has caused the flow of money to change.
“Nationally, investors have taken some money from real estate and put it into
other forms of investment,” he said.
But Kolsrud notes that REITs remain active as buyers of commercial property. “I
think that if you look at where the REITs are, their returns have changed, not
unlike all investors. [But] they still are very well capitalized. They’re not
out of the business of buying property at all,” Kolsrud said. “Are they
operating a little more cautious? Sure. But every investor is. The capital
markets have affected all parts of the real estate industry.”
There are bright spots in the market for some REITs: Self-storage REITs rose 9.5
percent the first two months of the year, while residential REITs increased 4.6
percent. Residential REITs are primarily apartment owners, but include some
manufactured housing. Apartment REITS alone were up 4.8 percent.
REITs enjoyed several years of stellar performance. In 2003, REITs were up 38.5
percent, followed by a 30.4 percent leap in 2004. For 2006, the REIT index
posted a 34.4 percent gain.
But in 2007, the REIT index dropped 17.8 percent amid the foreclosure crisis and
the credit crunch.
NAREIT currently tracks 152 REITs. Consolidation in the industry has caused a
decrease in the total number of REITs. The high water mark came in 1994, when
there were 226 REITs. The number of REITS has fallen sharply since 2005, when
there were 197 REITs.
According to information from NAREIT, 41 REITs currently own property in
Minnesota.
Nationally, REITs own $550 billion of commercial real estate, which is estimated
to be 10 to 15 percent of all institutionally owned commercial real estate.
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