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"1994 REIT Update"

Originally appeared inAlbuquerque Apartment Report Vol. 1.3-4 - Q3-4í94
A majority of this issue will be devoted to Real Estate Investment Trusts or REITís, and the impact that they are having on a national, and local level. Currently there are over 40 REITS that specialize in the acquisition of multifamily investments. The following paragraphs will give the reader a brief overview of why the real estate market needed REITs, whatís involved in the formation of a REIT, How REITs went from being the darling to deluge on Wall Street ,to the purchasing criteria for most REITs and the future of REITs. After the tax reform (or deform) act of 1986, the real estate business was headed into a 6 to 10 year spiral that costs the taxpayers over $500 billion dollars in the bail out of real estate lenders across the nation. The sudden lack of liquidity in real estate was further hampered by the surviving and more conservative real estate lenders (pension funds, local banks, the government) who slowly pulled their resources out of real estate. During the early nineties, those purchasers who had cash floated the market until another lender vehicle came over the horizon. Although some REITís have been around for over 30 years, a majority of these REITís were born on Wall Street as a securitized collateral to inject cash back into the commercial real estate arena. Currently it costs $2 to $3 Million to cover all of the expenses associated with initiating a REIT. These expenses acquire the necessary approvals for the REITís to proceed to an Independent Public Offering on (IPO) Wall Street. Due to the tremendous number of IPOís during the early 1990ís, Wall Streets interest in REITís has cooled, and is awaiting placement of the previously approved IPO funds. The recent increases in interest rates pushed by the Fedís have forced REITís to increase their yield criteria. REIT share investors who were once satisfied with 8% now clamor for higher returns. Although REITís will continue to be active in Commercial Real Estate, look for their competition to increase interest rates rise and if Congress approves a securitized of commercial real estate loans.


Article by
by Todd Clarke CCIM (www.nmcomreal.com/nmcomreal)
 
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