Real estate investment trusts gobbled up $47 billion in commercial property in 1997, nearly twice as much as the year before, with buildings in Chicago, Los Angeles and Orange County being the most popular targets, a study reports.
The buying spree included $18 billion in acquisitions that closed during the fourth quarter--40% more than the previous year--as more investors turned to the trusts, which combine the relative stability of real estate investment with the liquidity of frequently traded securities, according to an Alliance Capital/CB Commercial report released this week.
The 1997 total compares with $26.3 billion in acquisitions during 1996.
"There is the desire on the part of many investors for liquidity, and real estate historically has been one of the most illiquid of assets," said Dan O'Connor, managing editor of the index. A REIT "allows you to participate in the income and growth that real estate provides in a way that enables you for whatever reason to dispose of your holdings in a relatively easy and painless way," he said.
Chicago was the busiest market during 1997, with $3.7 billion in acquisitions closing. Orange County was second, with nearly $2.5 billion, followed by Los Angeles, with deals worth $2.4 billion.
Each of the three markets was characterized by a potential for continued growth in property prices and rental rates, although all experienced solid growth during the last 12 to 18 months, O'Connor said.
Also during 1997, newly formed REITs owning a total of $17.6 billion in property went public through initial public offerings. Some of that total, however, reflects property purchased before 1997.
REITs are companies that distribute most of their profits to shareholders through dividends. Some REITs own income-producing properties--office buildings, apartments, shopping malls and hotels; others own mortgages instead of property; and some own both. There are more than 300 REITs in the U.S., and many trade on major stock exchanges.
REITs have benefited in recent years from a real estate market in which rents and values have been rising in most places. The growth has not been enough to prompt new construction, however, and that trend raises the prospect that investors will see their current holdings' value continue to increase.
"Demand is strong and there is no place for tenants to go, so they pay higher rates," said Dan Pine, who manages about $700 million in REIT-based products for Alliance Capital. "It's going to stay that way for a while. That means anything you can buy at today's prices [and] that have leases coming due in the next couple of years will be excellent investments."
The seven other leading areas for REIT activity last year were Atlanta, with $2.3 billion; Washington, D.C., $2.09 billion; midtown Manhattan, $2 billion; Dallas/Fort Worth, $1.8 billion; Houston, $1.37 billion; Boston, $1.36 billion; and Philadelphia, $1.3 billion.