REITs to Benefit from Commercial Property Crisis

Includes: BXP, KIM, SPG, VNO
by: Research Recap

CreditSights analyst Craig Guttenplan believes Real Estate Investment Trusts will be one of the the biggest beneficiaries of the commercial property crisis.

Guttenplan acknowledges that “commercial real estate is a ticking time bomb waiting to explode all over the banks, insurance companies, pension funds, hedge funds, opportunity funds, private real estate owners, and basically anyone who bought or lent against commercial property with aggressive leverage at the height of the market. But, as they say, with times of great stress come great opportunities.”

“The media has focused for the most part on the likely losers of the upcoming commercial property bust but relatively little attention has been paid to the likely winners. In our view, the REIT industry will be one of the biggest beneficiaries of the commercial property crisis.”

While no landlord is immune to higher vacancies and lower rents, we believe that there will be a substantial amount of opportunities for well capitalized players with access to capital to enhance their portfolios and overall franchises largely at the expense of the private market.

  • REITs for the most part have among the best financial profiles of any commercial real estate owner these days and have core competencies in areas like acquisitions, financing, and leasing and operations.
  • These attributes should help REITs serve as vehicles for capitalizing on commercial property distress and attract more capital from both the public markets and institutional partners.
  • However, we strongly caution that this is not universally positive for REIT bondholders; liquidity needs remain significant and sizable acquisitions can redirect much needed capital.

Among REIT’s that CreditSights likes are Simon Property Group (NYSE:SPG), Kimco Realty (NYSE:KIM), Vornado (NYSE:VNO) and Boston Properties (NYSE:BXP).

The complete presentation is available here.