It sounds counter-intuitive; as we continue to report all sorts of problems in the commercial real estate market, not the least of which is rising defaults in commercial mortgage-backed securities, real estate investment trusts, many of which invest in commercial real estate, are on a roll.
REITs have been raising capital and paying down debt like nobody's business.
Last year REITs raised $34.7 billion, according to their industry group, NAREIT. So far in 2010 they've raised nearly $27 billion with equity offerings and unsecured debt, therefore on track to meet and possibly exceed last year. The industry has also reduced its leverage by one third in just the past twelve months. While REIT shares are still about 30 percent below their peak in 2007, they are roaring back.
REITS now have access to the needed capital, unlike some of their private equity counterparts, but it's not a buying spree...yet. "REITS have been the most active buyers recently in commercial real estate, but there have been very few transactions," says NAREIT's Brad Case. "The reason for that is that owners on the private side who are in trouble are not yet forced to sell their properties because their debts haven't come due."