Realty Check

Take the Big Bet on Commercial REITs

Commercial Real Estate

IPOs are hot this week, and they're getting a big boost from the REIT sector.


I thought commercial real estate was "the next shoe to drop"??

Well yes, according to Moody's/Real Commercial Property Price Index, prices fell 5.1 percent month to month and are down 38.7 percent from the peak in October of 2007. Commercial loan delinquencies continued to climb in the second quarter of this year, according to the Mortgage Bankers Association:

"The economic fallout of the recession continued to push commercial and multifamily delinquency rates higher during the second quarter," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "Lower levels of employment, the pullback by consumers and other aspects of the slowdown translated into a difficult operating environment for many income-producing properties. That in turn has led to increased stress on the loans those properties support."

So back to my point, why would anyone in their right mind launch an REIT IPO this week?

Paul Puryear over at Raymond James:

The market perceives that there is an opportunity in the debt market not being filled by banks and life companies, and of course the CMBS market is essentially dead. These REITs are looking to fill this void and lend to income property owners and invest in high grade CMBS and perhaps participate in the TALF supported CMBS issues. (that's one trillion dollars maturing over the next four years).

And then there's the fact that REITs have been on a tear. The Dow Jones REIT index is up 84 percent in the last six months, and in that same time sixty different REITs have raised more than 16 billion dollars in new equity. Industry folks tell me these REITs are looking to find cheap distressed properties and make a long term killing.

Questions?  Comments?