Future of REITs?
Recently came across an article stating that most funds are under-allocated in the real estate sector (REITs specifically). What do you guys think lies ahead for REITs within the next 5-10 years in terms of expansion / credibility in the market / etc.
That's probably the article from Green Street.
REITs are great for stabilized assets, and providing liquidity. Larger REITs can take on a moderate amount of repositioning/development, but this works best inside of a PE structure.
Due to a relatively low fee/overhead structure, and discipline enforced by the public markets, REITs will outperform most other CRE investment vehicles over time, and this should lead to larger inflows. Some PE shops do very well, but many will underperform relative to REITs.
There are far too many small REITs right now, so it's important to differentiate:
Large REITs - will do well over time, and get larger Smaller REITs - many do not make sense. Overhead/compliance is too high, and access to capital markets isn't great. They will either consolidate, or go private
Having spoken with a few acquisitions people from some of the bigger REITs, I'm seeing them raise the bar on their current holdings. Selling underperforming assets or even assets with lower-end demographics. This is only in reference to the large REITs, I don't have first hand experience with the smaller ones, but I'd agree with Erioke's assertion. I think you may see some merge together to compete with the bigger funds. Those big guys can get very aggressive on caps when they get locked on a deal.
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