Managers snap up market-battered REITs
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
      Kennedy Lewis raises $2.1 billion for latest opportunistic credit fund
    • Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
    • World economic growth ‘a race between a mutating virus and vaccinations’ – IMF
      Fred DeSerio
      Commentary: A new era for manager due diligence
      CalSTRS participant retirements jump in second half of 2020
      Steve Foresti
      Despite a truly frightening March, funds ended year in great shape
    • Signage outside the Blackstone Group Inc. headquarters in New York on July 13, 2019
      Blackstone to sell Alight to SPAC in $7.3 billion deal
      Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Kenneth J. Munro III
      Empower names new national sales director
    • BlackRock’s Fink urges others to join in net-zero commitment
      Global business leaders commit to stakeholder metrics
      Emissions rise from a coal-fired power plant
      NYC pension funds to divest fossil fuels
      A Eurosystem monetary authority sign outside the European Central Bank headquarters in Frankfurt on March 7, 2019
      ECB considers going greener in staff pension fund
    • Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
      Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
      Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
      Gifford Fong
      Old ties help bring local version of JOIM to mainland China
    • Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
    • Rice endowment returns -0.7% for fiscal year
      Earnings key driver of public pension revenues – study
      Rutgers rides to 0.2% return in fiscal year
      Leon Black, chairman and chief executive officer of Apollo Global Management at the annual Milken Institute Global Conference in Beverly Hills, Calif., on April 27, 2015
      Black hangs on at Apollo as Epstein links cost him CEO role
    • River and Mercantile chooses head of infrastructure
      Leon Black, chairman and chief executive officer of Apollo Global Management at the annual Milken Institute Global Conference in Beverly Hills, Calif., on April 27, 2015
      Black hangs on at Apollo as Epstein links cost him CEO role
      Paul Schofield
      NN Investment Partners adds head of sustainable and impact equity team
      CI Financial to acquire Segall Bryant
    • Earnings key driver of public pension revenues – study
      Canadian plans cap 2020 with 10% annual return – Northern Trust
      CalSTRS participant retirements jump in second half of 2020
      A sign outside California Public Employees' Retirement System headquarters in Sacramento
      CalPERS expecting to announce new CIO this quarter
    • River and Mercantile chooses head of infrastructure
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      Paul Schofield
      NN Investment Partners adds head of sustainable and impact equity team
      Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
      Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • San Luis Obispo County hunting for private markets consulant
      Texas County commits $45 million to opportunistic real estate
      SEI picks Delaware Investments as equity fund subadviser
      Trenton, Mich., swings to Fidelity to run $20 million in large-cap equities
    • San Luis Obispo County hunting for private markets consulant
      Texas County commits $45 million to opportunistic real estate
      SEI picks Delaware Investments as equity fund subadviser
      Trenton, Mich., swings to Fidelity to run $20 million in large-cap equities
    • Co-Administration, Financial Advisory, Transfer Agent, and Custodial Services
      Maryland State Retirement and Pension System
      Master Custodian and Related Services
      Transition Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      Cartoons depict a year like no other
      view gallery
      25 photos
      2020 in editorial Cartoons
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Fred DeSerio
      Commentary: A new era for manager due diligence
      Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:33
      A look at hiring activity in 2020
      watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
    • POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for January 2021
      Riskwatch for Q4 2020
      Graphic: A look at hiring activity in 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ALTERNATIVES
September 07, 2015 01:00 AM

Managers snap up market-battered REITs

With property prices high, firms are seeing value in privatizations

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Jin Lee/Bloomberg
    Ritson Ferguson thinks REITs will continue to be taken private by real estate managers if their values remain depressed.

    Flush with cash, real estate managers are buying up real estate investment trusts to take advantage of the gap between public and private valuations — a sign the commercial real estate market is in the last stages of its cycle, managers said.

    REIT share prices have suffered this year, trading roughly 15% below net asset value after trading at a premium last year.

    Privatizations give REIT portfolios and equity portfolios with REIT exposure a boost in returns and offer properties at cheaper prices, industry insiders say. But privatizations also offer evidence that while the top of the market might not be around the corner, it's definitely in the neighborhood.

    “There's no question that privatizations tend to happen later in cycles,” said Cedrik Lachance, managing director at Green Street Advisors LLC, a real estate research and advisory firm in Newport Beach, Calif. “There was a significant wave (of privatizations) from 2005 to 2007 and since then it's been largely quiet.”

    The quiet ended this year. Three REIT privatizations have occurred so far in 2015, two of them in the multifamily housing business.

    In June, Home Properties Inc. announced it was being acquired by real estate firm Lone Star Funds in a $7.6 billion deal. In April, Associated Estates Realty Corp. announced its sale to real asset manager Brookfield Asset Management Inc. for $2.5 billion. Also in April, Excel Trust Inc., a REIT specializing in commercial strip centers, announced it was being purchased by Blackstone Group for about $2 billion.

    REITs hold a treasure trove of properties, owning roughly $1.7 trillion of commercial real estate assets as of June 30, according to the National Association of Real Estate Investment Trusts, a Washington-based trade group.

    Real estate managers have cash to burn. Managers of real estate equity held a record total of $249 billion in unspent capital commitments as of June 30, which has not been easy to invest in light of increased competition and rising property prices. So managers are taking advantage of the drop in REIT share prices to scoop up underlying portfolios at lower prices than buying the properties individually.

    “There's no question today that there is a wall of capital — domestic and global — that wants to own U.S. real estate assets, and so if they (real estate managers) see the opportunity to buy a REIT at a price below where they would be purchasing similar assets in the private market, the likely result is more REIT privatizations,” said J. Scott Craig, vice president and portfolio manager with Eaton Vance Management in Boston.

    REIT privatizations slowed down considerably after 2007, when 14 REITs worth a total of $122.5 billion were taken private, according to data from NAREIT. The largest transaction — Blackstone Group's $39 billion takeover of Sam Zell's Equity Office Properties Trust in 2007 — ended up marking the top of the last commercial real estate cycle. Despite the high price Blackstone paid, the firm recently indicated it expects to triple its money from the investment.

    Only two REIT privatizations occurred in 2014, valued at a combined $1.1 billion, and only one was done by a real estate manager. GoldenTree Asset Management LP acquired Origen Financial Inc., a REIT that invests in manufactured housing, in September for $456 million.

    More likely

    Industry experts say privatizations should increase this year as long as share prices remain below property valuations. REITs have been falling this year since January's peak, setting the table for the three privatizations so far this year, Mr. Craig noted.

    On Aug. 17, another REIT — Strategic Hotels & Resorts Inc., which owns high-end hotels and resorts — announced it had hired J.P. Morgan Chase & Co. to act as financial adviser to explore “strategic alternatives” including a potential sale of the company.

    “If current trends prevail, we are likely to see more,” Mr. Craig added.

    Ritson Ferguson, global chief investment officer of Los Angeles real estate money manager CBRE Global Investors, agreed.

    “If REIT prices stay depressed at these levels at greater than 10% discounts to NAVs, then, yes, I think there will be more privatizations of REITs. There is a lot of money in the hands of private equity investors looking to buy real estate and if the discounts remain in the public market, it makes sense that there will be more buying of public company portfolios.”

    While Mr. Ferguson does not think increased privatizations signal a top of the market right now, “this is a clear case where the views of public and private market investors have temporarily diverged.”

    But this investment opportunity will not last forever. “Over time, these pricing discrepancies usually get arbitraged away,” Mr. Ferguson said.

    Privatizations are a benefit for real estate managers, said David W. Julier, director and portfolio manager at Wilmington-based money manager DuPont Capital Management Corp.

    “Private equity (real estate) can unlock a lot of value from these portfolios where they have assets not core to the mission of the public entity and for REITs that no longer want to be beholden to the quarterly reporting demands of Wall Street,” Mr. Julier said.

    Green Street's Mr. Lachance said real estate prices, while higher than REIT share prices, are pretty stable. “Real estate prices are unlikely to grow in the next six months,” he said. “We are in a period of general stability.”

    Managers specializing in REITs are buying up shares of those REITs most likely to go private “to realize the private market value of the assets,” he said.

    Public to private to ...

    REITs do appear to be in the sights of real estate investors, noted Justin Knight, president and CEO of Richmond, Va.-based Apple Hospitality REIT Inc., a former private non-traded REIT that went public in May. “Several public hospitality companies have recently made public their intention to explore strategic options including a potential sale,” he said.

    Even though Apple REIT has only been publicly traded for about three months, the board would entertain a buyout.

    “As a company, we continue to believe there is a great deal of potential in our portfolio and remain focused on executing our proven strategy,” Mr. Knight said. “With that said, we will carefully consider any opportunity that has the potential to create or enhance value for our shareholders.”

    Wayne Goldberg is director, president and CEO of Irving, Texas-based La Quinta Properties Inc., a publicly traded hospitality REIT that has been down the privatization road before. Blackstone bought La Quinta Corp. and its subsidiary, hospitality REIT La Quinta Properties Inc., in 2005, for $3.4 billion. Blackstone took La Quinta public again as a REIT in April 2014.

    “We were a public company, then we were a private company and now we are a public company again,” said Mr. Goldberg. “When we were a private company the concern was that Blackstone will exit the company ... that's who they are and that's their job.”

    Blackstone is still La Quinta's largest shareholder, holding roughly 27%, he said. He noted La Quinta has had five ownership structures in 21 years. Mr. Goldberg has been with the company for 16 years.

    “To me, "who controls, who owns' doesn't matter as long as we have the right people, the right brand ... the best job security is to be part of very profitable company,” he said. n

    Related Articles
    REITs outperform broad equity markets in quarter, year
    REIT returns strong, allocations remain low, study finds
    Recommended for You
    Apollo Global CEO Leon Black to retire after Epstein review
    Apollo Global CEO Leon Black to retire after Epstein review
    Coller Capital collects $9 billion with latest secondaries fund
    Coller Capital collects $9 billion with latest secondaries fund
    Setter: Alternative secondary deals drop 27.7% in 2020
    Setter: Alternative secondary deals drop 27.7% in 2020
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center