Transcripts

The Revival of REITs

PAUL KANGAS: With the housing market showing signs of life, the market for real estate investment trusts or REITs appears to have been resuscitated. Many REITs were decimated in the housing downturn and there may still be trouble ahead for those with heavy debt loads. But as Scott Gurvey explains, some analysts think now may be the right time to revisit REITs.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Considering the mortgage melt-down and the near collapse of the financial system, investing in real estate is probably the farthest thing from your mind. But since hitting a bottom in March, shares of some publicly traded real estate investment trusts or REITs, have begun to inch upward. Martin Cohen of Cohen and Steers, a firm which specializes in managing REIT funds, says the market has turned.

MARTIN COHEN, CO-CEO, COHEN & STEERS: Something new has developed over the last couple of months and that's really a recapitalization of the REIT industry. The liquidity concerns are still there and were still there and are now. But REITS have been able to raise capital to address those liquidity concerns, so there's no question now about them being going concerns, because there's no debt maturities that are going to trip them up over the next few years.

GURVEY: Many financial advisors recommend investors have a small amount of their portfolio in real estate. But it is important to pay attention to the mix of properties a REIT holds -- some focus on residential properties, others on office space and still others on commercial space, like shopping malls. Scott Robinson of Cadence Capital says, when it comes to recovering from recession, one factor is key.

SCOTT ROBINSON, MANAGING PARTNER, CADENCE CAPITAL GROUP: Those companies with shorter lease terms, the most likely, multi-family, maybe hotels, but that's -- the travel industry is a little bit different right now than the broader economy, so, again, probably multi-family and then grocery anchored retailers.

GURVEY: Martin Cohen recommends clients hold one large REIT in each of the major classes. He likes and owns Avalon Bay for rental, Boston Properties for offices and Simon Property for retail. He also says office and commercial property REITS may suffer further losses, but if that were to happen, he thinks there are now billions of dollars waiting to buy distressed properties.

COHEN: This capital is both in the public companies and also a lot of private equity and then other private funds. So while there may be a shoe to drop where certain loans will be in default and certain mortgages will not be able to be repaid or refinanced, there's going to be a lot of capital to catch -- to replace the current owners.

GURVEY: With the liquidity crisis apparently passing, analysts say investors should watch to see which REITs begin buying properties again. They say that will be another sign of recovery in the REIT market. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.