REITs have been tapping equity markets and are poised to benefit from the turmoil in the commercial real estate market (via WSJ):

REITs are poised once again to pick up the pieces from the commercial-property bust. This year, they have tapped the stock market for nearly $15 billion in new equity and, this month have raised $2 billion in unsecured debt. The equity deals diluted shareholders’ ownership stakes, but positioned many REITs — such as mall owner Simon Property Group Inc. and warehouse landlord ProLogis — to avoid loan defaults and have buying power when distress hits the market.

Most of the REITs were pretty savvy during the bubble. They were net sellers at the top while the private equity guys were net buyers. Smart money sold to the hot money. There have been a number of secondary REIT offerings this year and most of them have been well received. About $12 billion has been raised since March in equity offerings and most of the REITs offering stock have seen their stock prices outperform the REIT indices after the offering. Some of the proceeds are being used to pay down debt while some is being set aside for acquisitions. This is quite similar to what happened in the early 90s when most of the private funds were wiped out and the REITs picked up the pieces on the cheap.

Foreign REITs have outperformed so far this year and I still think they offer greater stability and upside potential, but US based REITs have a signficant opportunity over the next few years to pick up properties on the cheap while occupancy rates are low. Dividend yields are not high enough right now to justify making a big bet on the sector but as the economy and commercial real estate recovers, dividend yields should rise.

Domestic REITs (IShares Real Estate)

 

Foreign Real Estate (SPDR Wilshire Int’l Real Estate)