REITs need new sources of capital.

Limited capital availability continues to be an issue for the REIT industry as we enter the fourth quarter. Public equity capital supply continues to decline, leaving REITs in need of capital with few options - private equity, asset sales or debt.

With REIT share prices dropping, debt to total capitalization has significantly increased, putting pressure even on the availability of debt. Consequently, REITs are working with capital sources like Praedium to think through their strategic alternatives and transactions.

One option being explored by these REITs is going private to help shareholders create more value through a private market sale or management-led buy-out at premiums to current market prices. Praedium is currently working with several management teams to consider this option.

Another strategy is the sale of non-strategic or other assets so money can be redeployed in assets that help better achieve the REITs' core objectives. Praedium has been an active buyer of these assets this year, acquiring a $75 million office portfolio from Reckson Associates Realty, an apartment community from Charles E. Smith and is currently working with several other REITs.

Finally, many REITs are considering strategic joint ventures with private capital sources where they can invest in a minority position in a property or portfolio of properties and maintain management responsibility. In this case, a private capital source like Praedium becomes the venture partner. This technique can be employed either for assets within a REIT's existing portfolio, for new acquisitions or a combination of both.

We are currently working with a number of REITs on a symbiotic basis whereas both parties can take advantage of each other's strengths - their infrastructure, ability to source interesting opportunities and market knowledge, and our access to private capital and equally proficient access to new business.

Going forward, we can expect to see a stronger union between private entrepreneurial capital sources and the REIT industry. This will result in an increase in joint venture activity, privatizations and new opportunities for REITs to take advantage of private capital market opportunities.