- REIT used to purchase good quality assets strictly complying with laws regulations
- Now a days, REIT has got more flexible and aggressive in terms of their acquisition
- Their behavior looks more like that of opportunistic investors
- If REIT behave more like opportunistic investors, REIT would imply high risk modest return
- We may see some restructuring of REITs
Yuko, recently REITs have been acquiring challenging assets, my friend asset manager told me.
“Really? What do you mean??”
According to him, before the COVID, due to the harsh competition, some REIT had already approached very challenging assets. What does “challenging mean?”
Say, a property has over volume, which is not complying with the current building codes, is missing certification of building completion, or has a single tenant who is about to leave, when we find this kind of property, we would identify this property as “challenging”.
As the time passes, the risk of demolish and re-development would be more clear and measurable. Therefore, the sales price would reflect such risks. This would negatively affecting the performance of REIT. The debt would increase, the expense would increase, and the performance may be negatively affected.
When I was working for financial institutions, origination guys who arranged loans used to tell that at the exit the property will be sold to REIT. I got puzzled why REIT acquires properties at high price to secure the property fund’s profit.
After the Lehman brothers clash, several REIT under performed, got unlisted, and merged by larger REIT. I am afraid that the same situation we may see after COVID pandemic.
Further queries or doubts, please email to ytomizuka@abrilsjp.com
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- Tags
- exit, Japan, over invest, REIT
