Focus on REITs: Public Real Estate Companies' Advantages Will Overpower the REIT Bear Market
Panovka, Robin, Real Estate Issues
The current REIT-related news centers on the day-to-day performance of REIT stocks, the excessive restrictions imposed by the REIT rules, methods for retaining and compensating REIT executives, and predictions for when the REIT bear market will end. Often forgotten, however, as the REIT industry licks its bear market wounds, are the long-term advantages of publicly traded, corporate real estate operating companies, or REOCs. For all of their shortcomings and maturational problems, publicly-traded REITs represent a new breed of investment vehicles that have noteworthy virtues and fundamental advantages over many of the older methods of investing in real estate.
Take, for example, the perspective of the individual investor who bought interests in syndicated limited partnerships in the 1980's and whose plight is once again making news. There can be little doubt that the public REIT or REOC offers individual investors more liquidity, better governance and accountability of management, and better reporting and transparency than the syndicated limited partnership structure.
And the same is often true from the perspective of institutional investors. Take the admittedly crude example of an institutional investor based somewhere in the Midwest who would like to allocate some funds to office buildings in the Southeast. The investor now has a choice between investing in the publicly-traded stock of any number of REITs which focus on the sector or utilizing one of the various private market alternatives that has historically been available. Investing in the public stock will often prove advantageous for a number of reasons:
Instant access to information required to make the investment decision SEC filings on the REIT that provide detailed information, including audited financials, can be pulled off the Internet in seconds.
Speed of execution and liquidity - depending on the size of the investment, the stock can be purchased and sold almost instantly with a few clicks of a mouse.
Assurance of getting future reports on a regular basis - public companies are required to file with the SEC publicly available quarterly reports, including financials, and to disclose all material events. …