NEW YORK — The National Association of Real Estate Investment Trust kicked off its 2006 investor conference in New York last week by hosting more than 150 companies at the Waldorf-Astoria in Midtown. Approximately 130 REITs made presentations to analysts and investors, with retail heavyweights including General Growth Properties, Simon Property Group and Taubman Centers.
WWD spoke with Steven Wechsler, president and chief executive officer of NAREIT, about the important issues effecting REITs today.
WWD: What were some of the underlying themes at the conference?
Steven Wechsler: One conversation was on mergers and acquisitions and privatization. There has been a fair amount of activity in the mergers and acquisitions and privatization sphere; half of it has been REITs acquiring other REITs, or REITs acquiring significant portfolios of private properties. But the acquisition activity has been going all ways, public to private, public to public, private to public. We take it as a sign of a healthy and dynamic marketplace.
Globalization and cross-border investment is the second major theme. Increasingly, real estate is going global just like so much of the economy has already. When investors are looking to invest in real estate, they want to do so on a global basis and they want to do so with ample exposure both in the U.S. and outside the U.S. Globalization takes place on two levels. At one level is the investor, who is looking to invest in companies that operate and own real estate in different parts of the world. At the second level is the REIT, with REITs increasingly making investments outside the U.S., especially in Asia. This is the beginning of a meaningful trend. We’ve seen it among the REITs most fully realized in the industrial sector at the ports and airports around the world as they provide property and services to their global corporate clients, and we are also starting to see it in the retail space. Simon, for example, with its acquisition of Chelsea ended up with a meaningful position in Japan and some exposure to Mexico, and is looking at China and parts of Asia. Taubman has the same in terms of looking at Korea and China, while General Growth has indicated at looking at countries like Brazil and Turkey. We believe there is more to come among the large mall operators, especially as the owners expand with their tenant base.
WWD: What are the biggest concerns of your constituents?
S.W.: REIT managers are looking at broader macroeconomic trends. The interest rate picture is important to them. Real estate is a large user of capital, so interest rates are significant; REITs and real estate are choices among many asset classes and investments so relative value is always important. Certain sectors are attuned to specific things. For owners of large malls, and building owners in New York, Washington, and other major metropolitan areas, one of the biggest priorities was extending the Terrorist Risk Insurance Act that had been passed in 2002 and expired in 2005. It was extended to 2007, which ensures that insurance companies must offer terrorism insurance to their policy holders on the same basic terms and conditions as other coverage and government will provide reinsurance in the case of a catastrophic terrorist attack.
WWD: What do you see as the biggest opportunities for retail REITs in the coming year?
S.W.: The large mall companies obviously are very focused on consumer sentiment and spending and that has continued to hold up and hold up well into this year. The owners continue to look at different retail concepts. Retail is also becoming more globalized, and that’s clearly why REITs have started to look abroad, and consider diversifying some of their holdings abroad to take advantage of fast-growing economies in growing parts of the world such as parts of Asia.
WWD: Do you think that REITs specializing in different property types will partner up as mixed-use developments become more popular?
S.W.: We’ve seen in recent years growing interest in mixed use in major metropolitan areas by retail, residential and office users. Oftentimes one REIT will look to another REIT in a different sector because their core competencies are different and it makes sense to do these things together. We expect to see an increase of that to the extent that mixed-use developments are economically attractive. You may also see public REITs in one sector partner with private real estate companies. The partnerships are very site-specific and opportunity related. There is no magic about one group pairing with another group, it is about matching the skill sets needed for particular deals.
WWD: Are foreign investors eating up investment and development deals?
S.W.: There’s not one particular foreign investor that is increasing competition, though more foreigners are coming into the market. There now exists a global real estate investment platform, with more than 20 countries in the world having REITs or REIT-like laws, so what we’re seeing is a growing familiarity around the world with the concept of REITs and that makes the U.S. REIT market seem much more openly available to foreign investors.