Real-estate investment trusts (REITS) are a factor in commercial real estate’s recovery, and it seems there’s still room for growth. According to Howard Gold of MarketWatch, no sector in the U.S. market has done as well as in the past two years ago. These publicly traded vehicles that own commercial property and pay out 90% of their income to shareholders have beaten financials and consumer-discretionary stocks during the rally from the market’s bottom in March 2009.
San Francisco-based Callan Associates reports the FTSE NAREIT All Equity REIT Index gained 10.8% annually over the 10 years ending December 31, 2010. Only gold and emerging-markets stocks did better during that “lost decade” for the S&P 500. Popular funds are up over 100% since 2009, and the Vanguard REIT Index returned 28.4% in 2010.
Why have REITs done so well? Gold says it’s partly because they did so poorly in the bear market, when the NAREIT All Equity Index lost 19% in 2007 and another 41% in 2008 — much worse than the S&P’s plunge.
Two recent REIT portfolio healthcare property acquisitions by JER Partners and Ventas totaled nearly $10 million. Brad Case, NAREIT research vice president said that this type of deal will indeed lead to improved property fundamentals. Case says, “REIT …returns continue to be strong and the market is recognizing their strengths – their access to capital and improving fundamentals;” he adds that investors are becoming convinced that a double-dip recession has been avoided, which is also spurring investment.
So far, this confidence has translated into an 8.29% rise in the FTSE NAREIT All REITs Index for the first two months of 2011, compared to 5.88% for the S&P 500. They’ve had a huge edge over private owners, who until recently have been frozen out by banks unwilling or unable to lend.
Read more on REITS at: http://www.realtor.org/rmocommercial/articles/2010/1003_commercial_newsbriefs
- Investing in real estate via REITs and real estate mutual funds (usatoday.com)
- Can REITs Continue to Rally in 2011? (money.usnews.com)
- This Could Be a Good Year for Commercial Real Estate (dailyfinance.com)