Turning Mortgages Into Money

July 20, 2015

Many of the most profitable transactions in real estate today aren’t simply sales related. They’re turning holdings into healthy income through non-recourse financingsale-leaseback transactions and REIT conversions. And, in most cases, these transactions are creating a way for operating companies and investors alike to capitalize on the value tied up in real estate assets.

As the real estate market has regained the strength and stability lost in 2008, the trend toward REIT conversions and similar transactions has grown. In fact, during 2013 and 2014, nearly 25 new U.S.-based REIT initial public offerings came to market, raising $9.7 billion, according to the National Association of Real Estate Investment Trusts. In 2015, that number is expected to grow, as more than 30 companies are weighing potential REIT offerings.

Combine that activity with low long-term interest rates and a strong growth profile, and the current market makes the monetization of real estate assets more attractive than ever.

Further illustrating the trend is the total market capitalization of recent REIT conversions, which, according to publicly available transactions compiled by consulting firm PwC, totals $126.5 billion since 2011. Plus, the activity reaches beyond traditional real estate to include industries such as cell towers, billboards, and utility or telecommunications infrastructure. Anywhere significant real estate is owned, a conversion could be possible, and the opportunities for investors are quickly expanding.

Transactions like these are designed to create growth capital for a more vibrant corporate future, but corporations aren’t the only ones that can take advantage of a conversion. As companies sell or spin off assets for proceeds, then utilize only what they need for operations, investors can tailor their investments to their own risk tolerance and still enjoy strong yields.

Whether monetization transactions are part of a long-term trend is yet to be seen – especially given the complexity of the conversion process – but commercial real estate investors would be wise to consider REIT options. Contact Intelica to learn more about the latest trends and investment opportunities in the St. Louis area and beyond.