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Private Investing Trumps REITs Once Again

30 November 2013

Back in August there was talk of how the popularity of REITs were starting to slide while private investors started to take over the marketplace instead. Going into the winter season and about to begin a new year, and it seems as though not a lot has changed on that front.

CBRE recently wrote a report in which they stated that things are still not going well for REITs, and that their prime peak years may have gone out just as quickly as they blew in.

“Transaction volume is expected to be sustained by pension fund/advisors and private Canadian investors as RETs and real estate operating companies take more of a back seat,” the report states.

But because private investors are stepping in and taking over a lot of those investments, the marketplace is still doing very well. At the end of this year it’s forecasted that the market will have hit $26.5-billion in 2013, making it one of the top three years in the history of the country.

“The private guys have really filled the hole,” said CBRE’s chairman, John O’Bryan, recently in an interview. “You’ve got traditional private investors like your families but now you’ve got wealth management companies with them, too. The demographic is you’ve got to find something to produce income and there’s nothing better for producing income than real estate.”

REITs have started losing popularity after their cost of equity saw a sharp increase, while seeing the overall price of their share decrease just as dramatically. It’s not going to get any better for them either, considering that the Bloomberg Canadian REIT index was down by 10 per cent over the first ten months of the year.

Mr. O’Bryan takes note of these drastic changes that have happened, and says that while things won’t be so dire for REITs indefinitely, they’re also not going to get back to the height they were at the beginning of the decade.

“It won’t happen the way it did in 2010 and 2011 and part of 2012, which were perfect conditions for the REITs,” he says.

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