Investor
Mercer Expects Big Things From REITs
by Allen Kenney
n October, Mercer,
a major consulting
firm to the retirement
plan industry, advised
institutional investors
that REITs are “poised
to capitalize on a period many
believe will present the best in-
vestment opportunities seen in
the past 20 years.”
The authors of the report,
David Nix and Michelle Reuter
of Mercer’s Manager Research
Real Estate Boutique, compared
the current REIT recovery with
what took place following the
commercial real estate crisis of
the early 1990s.
Nix and Reuter sat down with
REIT magazine to discuss the
striking comparisons they found
pointing to a coming period of
growth for REI Ts.
I
REI T: In comparing the early
1990s and today, your paper
states that “REITs no longer
have to fight for a seat at the
table, which is an important dif-
ference between the two time
periods.” Why is that?
David Nix: Prior to the early
1990s the REIT platform was
relatively unproven, but over the
last two decades REITs have
proven that not only can they
raise capital, they can deliver
solid returns as well. They have
done this in a period of added
public scrutiny and provided a
level of transparency investors
appreciate. They have also benefited from the rise of real estate
as a unique asset class.
Research has shown real estate generally does not correlate
with other asset classes and
because of this the popularity
of adding real estate to investor
portfolios has increased. Additionally, REI Ts have proven
popular with smaller investors.
Most private real estate vehicles
target large institutional investors and are unavailable to the
average investor.
REI T: Give us your perspective
on REITs’ equity raises in the
last 18 months.
Nix: For many existing REITs,
the decision to raise additional
equity was as much about their
backs being against the wall
as it was a strategic epiphany.
All other alternatives had been
taken off the table, leaving the
public market as the last un-
tested option. The early movers
were clearly taking a risk by of-
fering to dilute existing shares in
return for new capital. However,
once it was proven that REITs
with decent portfolios could at-
tract new capital, the flood gates
opened. Share price apprecia-
tion quickly offset any dilution
concerns and the entire industry
seemed to get a boost.
REI T: How should REITs approach their use of debt?
