The REIT Weekly – REITs Insulated CRE from Boom and Bust
This week in REIT news sheds light on the importance of REITs as a moderating influence in commercial real estate as well as the announcement of a third joint venture between Blackstone and DDR. In addition, we learn about the Canadian insurgence into the U.S. real estate market.
A study by Frank Packer, which appeared in the Journal of Portfolio Management, reveals that commercial real estate was not subject to the same boom and bust as the rest of the real estate market due to the prominence of REITs in the commercial real estate sector. The study hypothesizes that REITs increase the transparency of the real estate market, which allows investors to spot overvaluation or undervaluation quickly. The study claims this is supported by the fact that “overshoots and undershoots of construction in the U.S. office building market were more moderate at times when REITs had a bigger market share.”
A recent report states that DDR Corp. and an affiliate of Blackstone Real Estate Partners VII have formed a third joint venture to acquire 76 shopping centers that are currently owned by American Realty Capital Properties, Inc. The purchase price is approximately $2 billion and Blackstone will hold 95% of the joint venture with DDR holding the remaining 5%. According to the article, “American Realty Capital Properties president David Kay said proceeds from the sale will be recycled into its Red Lobster restaurant properties, and its single tenant, self-originated acquisitions strategy.”
According to a three-part series by GlobeSt.com, Canadian investors are swooping on U.S. commercial real estate. GlobeSt. interviews Dan Carlo, a principle of Avison Young, a Canadian firm that is expanding its presence in the U.S. According to Carlo, many factors have contributed to the influx. “Among those are the relative value of US real estate, given depressed prices during the Great Recession we are just now coming out of,” states Carlo. Also, Canadian property markets are smaller, and there simply was more Canadian capital pursuing attractive real estate assets in its home market than there were such assets available for purchase,” he adds.
Hotels that offer fewer amenities are attracting institutional investors. Lower operating costs and higher returns are a draw for the likes of Blackstone Group LLC and Starwood Properties. “The returns are very attractive and the financing for these deals is much easier and cleaner to underwrite,” said Samantha Fisher, a senior vice president at Jones Lang LaSalle Hotels.
