Office REITs Selling Assets, Repurchasing Stock

August 31, 2015

The demand for commercial real estate is on the rise – taking pricing with it – and several office REITs are taking advantage of the market. By stepping up their disposition pace, they’re hoping to raise equity and reward investors.

Even REITs such as Brookfield Property Partners, which started out the year looking to sell $2 billion in office assets, announced earlier in the month that it now plans to sell even more.

“There is no shortage of interest from institutional and sovereign wealth funds, and so we think it’s a good time to recycle capital out of mature, stabilized assets (and) we’re capitalizing on that,” said Ric Clark, CEO of Brookfield Property Partners, in his second quarter earnings conference call this week.

Preliminary information from CoStar Group indicates that office building sales are up 37 percent this year compared to the same period in 2014. In this type of environment, REITs can efficiently raise equity by selling partial interests in mature properties to investors, while earning service and performance fees from asset management, leasing and operational oversight to boost returns.

Because the current market favors sellers, the capital gained through the sale of assets positions REITs to fund forward-growth opportunities while improving near-term growth rates.

Beyond funding acquisition and new development, proceeds from these sales are also being pumped back into stock repurchasing programs. This cycle is aimed at boosting stock prices, which many REITs argue have not stayed in step with the increasing value of real estate portfolios.

It is yet to be seen whether the trend of office REIT asset sales and stock reinvestment will mean additional office space inventory in the Midwest. However, Intelica can help you stay in step with the latest developments. To learn more about the commercial real estate investment market, talk to our team.