An over-levered REIT sector and soft commercial real estate fundamentals will likely set up a negative 2010 for equity REITs, says Steven R. Marks, managing director of the financial institutions group at Fitch Ratings. Marks predicts most REITs will spend 2010 managing their assets and improving occupancies rather than making aggressive investments.
“We have negative outlooks on multifamily, industrial and retail. To start with multifamily, the negativity is driven really by two things. One is, again, soft fundamentals. In addition, multifamily REITs are relatively highly levered. In fact, some of the most levered REITs are multifamily REITs,” said Marks, who also concedes that multifamily REITs offset these concerns with their strong access to capital.
“Industrial REITs are on par with multifamily in terms of being the most highly levered sectors, but that negativity is offset by relatively strong liquidity because, again, a lot of REITs have been able to raise capital and have relatively strong liquidity profiles heading into 2010,” he said.
Marks also has a negative outlook for retail, although he is “stable” on both office and health care REITs. Two companies he considers outliers are Simon Property Group (SPG) and Equity Residential (EQR), both of which have strong access to capital and liquidity.
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