Large real estate investment trusts, flush with cheap capital, are beating out private equity — as well as some real estate investment managers — to buy properties and portfolios of troubled or smaller REITs.
In the first quarter alone, REITs raised $16.9 billion through secondary offerings, dwarfing the $3.5 billion raised by private equity-style real estate investment funds in the same period, according to data from the National Association of Real Estate Investment Trusts, a Washington-based trade group, and Preqin, a London-based research firm.
And what are REITs doing with that money? They're investing some of the cash, buying up properties and portfolios.
Just this month, apartment REIT Camden Property Trust entered into a deal to buy 11 apartments from Verde Apartment Communities for $321 million.
Over the last 12 months, there have been three REIT mergers with a combined value of about $29 billion. Two were announced this year: Industrial REIT AMB Property Corp merged with a larger rival, Prologis; and health-care REIT Ventas Inc. is merging with another health-care REIT, Nationwide Health Properties Inc.
Industry insiders said there might be other mergers, but limited to one or two sectors such as retail and industrial.
REITs are expected to continue to be big acquirers of real estate assets. With fundamentals such as rents expected to rise and REIT share prices to trade at par or above their net asset values, acquisitions add to shareholders equity, said Joe V. Rodriguez, managing director and head of global real estate securities in the Dallas office of Invesco Real Estate.
Already, REIT commercial real estate purchases are starting to climb. In a typical year, 8% of properties purchased are by REITs, said Mike Straneva, partner and Americas real estate sector leader in the Phoenix office of Ernst & Young LLC.
Last year, that percentage rose to 19% and in the first four months of this year, 14% of commercial properties were sold to REITs.
“REITs are going to be hugely profitable,” Mr. Straneva said. “They have access to capital and will be winners in buying distressed assets.”
They will also be in the position to take advantage of increases in rents when they occur, he said.
Among the top 20 buyers of commercial real estate (in terms of deal value) in the first quarter are six REITs, according to the May Global Capital Trends report from New York-based real estate research firm Real Capital Analytics. Among them was Host Hotels & Resorts Inc., which bought the Manchester Grand Hyatt in San Diego for $570 million and the New York Helmsley Hotel for $314 million in the quarter. Another REIT, Equity One Inc., through a joint venture with London-based listed property company Capital Shopping Centres, bought Capital and Counties USA Inc and its portfolio of 15 California retail properties in a $600 million deal.