Distressed Deals Should Drive REIT Market Activity in 2012

Morgan Stanley Managing Director Seth Weintrob said the large public-to-public REIT mergers that took place earlier in 2011 were outliers and not part of a larger trend. Speaking with REIT.com during REITWorld 2011: NAREIT’s Annual Convention for All Things REIT in Dallas last month, Weintrob said a key component to the steady stream of REIT M&A activity this year has been companies selling off non-core assets.

On the capital market side, Weintrob said 2011 has been a very active year in terms of debt and equity capital raising. “REITs still have access to capital at attractive rates,” Weintrob said.

Regarding single-asset sales and property transactions in 2011, Weintrob said the first half of the year was extremely active, probably more than people thought, and that tailed off as the year went along and concerns about market volatility persisted.

As for 2012, Weintrob said deal activity will be tied to market volatility and the situation in Europe.

“It feels like that process, in terms of figuring out and solving some of the European debt crisis issues–and, frankly, our own fiscal issues—is going to take some time,” Weintrob said.

Weintrob added that market activity will also be dependant on the type of deal. He said he expects initial public offerings to remain constricted while regular access to capital will be less impacted.

Because the multifamily sector has been less impacted by the general volatility in the economy and markets, Weintrob said he expects that to be the most active sector in 2012. “The supply-demand concerns in the housing market are driving activity,” he said.

A second area he said should be very active in 2012 surrounds distressed debt. “I think we are in the early innings in terms of a wave of both U.S. and European banks clearing some of the debt on their balance sheets,” Weintrob said. “Frankly, there is also a lot of overlevered CMBS and other debt that is going to result in recap activity.”

He said that will drive transaction activity both from value-add and opportunity fund players and, increasingly, with REITs.

Source:  REIT.com

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