‘Lessons Learned’ Ensures US REIT Liquidity Won’t Get Burned
November 16, 2016 | by Steven Marks | Commercial Property Executive
Following a difficult few months, U.S. equity REIT liquidity profiles have improved meaningfully year-over-year, thanks to a “lessons learned approach” from previous down cycles.
This improvement comes after a slow start to 2016 for REIT capital issuance, and particularly common equity issuance. Equity REITs were hampered by depressed valuations in comparison to net asset value. Overall issuance during the first quarter of this year was down by more than 25 percent compared to the first quarter of 2015. Additionally, specialty REITs focusing on cell towers, data centers and student housing accounted for more than half of total issuance, highlighting the difficulties of the major property types as they sought to access capital early in 2016. Since the second quarter, however, equity valuations have recovered, and overall REIT capital issuance through September has surpassed the total through the same time last year.
Major equity REIT property types are benefiting from a resurgence in common equity valuations and the global demand for positive-yielding debt. Retail REITs have been especially active, leading all property types in total issuance for both the second and third quarters to date. In fact, retail alone is responsible for more than a quarter of aggregate issuance since April 2016.
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The full-cycle event by a nontraded REIT in 2015 that created the most estimated common shareholder liquidity was Apple Hospitality REIT, which was created by a merger of Apple REITs Seven, Eight and Nine. The listing created approximately $3.3 billion in shareholder liquidity.
Blue Vault has released three editions of its Nontraded REIT Full Cycle Performance Study. The fourth will be released this month. The first contained 17 NTR liquidity events with an average IRR of 10.33%.