As the commercial real estate market continues to struggle, real estate investment trusts (REITs) are standing out, CNBC.com reported.
 
REITs raised $34.7 billion in 2009, according to the National Association of Real Estate Investment Trusts (NAREIT). So far this year, they have raised almost $27 billion with equity offerings and unsecured debt, which puts them on track to potentially exceed last year’s tally.
 
And though REIT share prices are still about 30 percent below their peak in 2007, they are poised for a comeback.
 
“REITs have been the most active buyers recently in commercial real estate, but there have been very few transactions,” says Brad Case of NAREIT. “The reason for that is that owners on the private side who are in trouble are not yet forced to sell their properties because their debts haven’t come due.”
 
But as loans mature, and the market recovers, banks may be more willing to let troubled properties go into foreclosure, which will open up more opportunities.
 
Yet not all are convinced that that “distressed properties” are the best option.
 
“A bargain is very hard to define,” said Don Wood, president and CEO of Maryland-based Federal Realty Investment Trust. “Things that look like bargains are often not.”
 
But that doesn’t mean Federal Realty, which has committed about $60 million of acquisition capital in Boston, Southern California, Long Island, N.Y. and Bethesda, Md., is not looking for the best deals.
 
“But finding something where there is value to be added over the next five, 10, 15 years is simply harder than it would seem,” Wood said. “Part of the reason is that there is a lot of money on the sidelines that is pushing values up.”
 
But REITs, which have a hold on about 10 percent of the commercial real estate market, may be in better shape than their private-equity counterparts as defaults rise in the commercial mortgage-backed securities sector.
 
“As we see bad news about commercial property values and about debts going bad, that is not REITs having trouble making their payments,” Case said. “It is going to be non-REITs having trouble making their payments. And REITs are in a position to take advantage of that.”