Private Equity Opportunity
Private equity firms have been buying REITs at a dramatic pace. I don't think the private equity guys are buying the firms as a bullish statement on the real estate market. They like REITS because REITs are moderately leveraged, typically 50%. The public equity markets start discounting REIT shares when the debt gets too high. This acts to keep REIT debt moderate. Private equity investors have no such constraints. Moderately leveraged REITs offer private equity firms a chance to leverage the real estate assets to much higher levels. The debt can be used to repay the private equity firms. I think the private equity guys will sell assets as they either repay debt or unload properties that don't fit in a portfolio. This should be an opportunity for small real estate firms, like tenant in common sponsors or other nimble real estate investors. If the private equity investors get over extended there will be many bargains.