REITs Reconsidering Growth Strategies
The real estate investment trusts that once promised investors rapid growth now find themselves unable to get out of neutral, raising questions about their future role and strategies, real estate observers said Monday.
“It’s an iffy proposition,” said consultant Louis H. Masotti, a moderator at a midyear outlook conference sponsored by Real Estate Conference Group in Century City. “There’s a real question as to what the future of REITs is.”
Until recently, REITs were industry superstars that used their valuable stock to gobble up prized properties. But investor concerns about the prospects of real estate and a financial squeeze late last year undermined REIT stock values and left many unable to finance aggressive expansion plans. As a result, humbled executives at Monday’s conference touted REITs’ safety and stability--not aggressive acquisitions.
“The acquisition [strategy] is over,” said Victor Coleman, president of Arden Realty, a Beverly Hills-based office REIT. “Internal growth is where the opportunities are.”
Coleman, whose firm is the largest office property landlord in Southern California, said Arden is focusing on improving services for its tenants to keep turnover low and win higher rents. Some of Arden’s properties, for example, offer on-site storage and more amenities. Such extras can permit landlords to charge a premium of more than 10%, according to surveys Coleman cited.
Instead of buying new property, many firms have sold off their holdings and invested the proceeds in new development with joint venture partners. Dwight Merriman, senior vice president of CarrAmerica Realty Corp., said his firm sold about $400 million of its portfolio to finance new office projects.
Firms have also bought back their own stock, and at least one has opted to become a privately owned operation, panelists said.
REITs will have to change their sales pitch to Wall Street investors who were once wowed by REITs’ fast growth. Instead, the firms should pitch their stocks as a safe place for investors to park funds, said Glenn L. Carpenter, chairman and chief executive of Newport Beach-based Pacific Gulf Properties Inc.”We have to get the attention of the stockholder . . . and sell [the stocks] as stable and safe investments,” Carpenter said.
