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Newest REITs represent all property types.

The newest REIT issues suggest that no single property type will monopolize the REIT format for the investment, management and financing of commercial real estate. In fact, all property types have either been pooled in REITs or are now being planned for REIT initial public offerings (IPOs).

The real estate investment trust (REIT) provides a vehicle for individuals and institutions seeking to invest in commercial property under professional management. Patterned after mutual funds and designed to provide small and medium-sized investors access to institutional grade real estate investments, the REIT Act of 1960 has evolved since its original inception.

In the 1960s, REITs were typically about $25 million in size and diversified by property type and geography. The 1970s saw an explosion of real estate development and a large growth in mortgage REITs, many of which failed, leaving REITs with a heavy stigma for investors.

In the early 1980s, REITs were distinguished by an attempt to exploit tax breaks in the federal tax code. The tax code has since been revised to eliminate these opportunities. Recently, REITs have shifted back to the fundamentals of real estate -- the cash flows underlying the REIT properties, most often focused by property type and geography. Most REIT watchers agree the Kimco Realty offering of November 22, 1991 initiated the newest generation of REITs. Retail and residential REITs account for the largest proportion of new REITs, but opportunities for retail and multi-family REITs may be fading, because the best properties, at the best prices, may have already been placed with REITs.

Office REITs are just getting underway, with net leased products showing the most promise as REITs vehicles. Improving hotel economics are demonstrating that even this recently troubled asset class can be successfully brought to the equity market. Several new hotel REITs have piqued investor interest. Limited new hotel supply, the availability of a large pool of properties at low prices not yet picked over by investors, the arbitrage opportunities available between hotel cap rates and dividend yields, and the special responsiveness of this property type to improved management make hotels the new REIT frontier.

Coopers & Lybrand was an early proponent of REITs as an appropriate method of raising capital and managing real estate out of the most recent recession. In two publications, REITs: A Vehicle for the 1990s (1989), and REITs: The Future is Now (1992), our firm prophesied their rise.

Between the end of 1991 and the end of 1993 we captured a one-third share of all REIT IPOs. No other accounting firm has captured such a share of this burgeoning market. Of the several hotel REITs, Coopers & Lybrand was the accounting firm on two of them and the firm is currently working on a anther hotel REIT now in the process of registration.
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Title Annotation:Review and Forecast Section III; real estate investment trusts
Author:Leardo, Patrick R.
Publication:Real Estate Weekly
Date:Jun 22, 1994
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