Real estate investment trusts picked up tremendous steam in 2012, carrying the momentum into the new year with dozens of REITs filing for initial public offerings in 2013.
Due to positive fundamentals as well as low interest rates, new IPO REITS will continue to develop into the market, Ron D’Vari, CEO and co-founder of NewOak, told HousingWire. D’Vari was involved with PennyMac’s formation as a fund and company in 2008.
“The reason is that there has been a tremendous opportunities in the last five years to acquire and manage a substantial REIT qualified assets often under private equity fund format. These vehicles have not been permanent capital vehicles such as REITS,” he explained.
There’s no doubt that REITs are an attractive hot spot for investors. As a result, there are still opportunities to source assets although at higher prices.
For instance, over the last week, Cherry Hill Mortgage, PennyMac and Armada Hoffler Properties either filed for initial public offerings or set up stock offering terms.
Thus, market experts expect REITs to generate double-digit returns this year. As a result, strengthening income growth as well as expanding dividend payout ratios will provide investors with steady growth over the next three years, according to RREEF Real Estate, a member of Deutsche Bank Group (DB).
On a similar note, analysts with Keefe Bruyette & Woods said nonagency-mortgage REITs are set up to produce more opportunities for investors this year. This is due to nonagency MBS providing a good hedge against interest rates and offering optionality to a mortgage credit recovery.
Given the appetite for yield an availability to source real estate assets, especially between one and four single-family homes that have been acquired at reasonable valuation – real estate-owned to rentals – many funds may transform themselves to REITs, D’Vari explained.
“Furthermore, certain resi loan types that fall out of the eligibility and risk capital weight of many banks, become ideal for the REITs to buy them and leverage them via bank loans,” he said.
NewOak is a company that analyzes and values equity, debt and opportunistic REITs on behalf of clients. While they are not direct investors in REITs, from time to time the company performs advisory services.
Thus, when looking at a specific non-traded REITs such as American Residential Properties, such REITs are placed through registered investor advisers and have roughly between 7% to 10% charge.
So in that light, the 12% basis point placement fee that American Residential Properties has placed seems to be “unbelievably low,” D’Vari concluded.
