REJournals.com - Commercial Real Estate Property News for Chicago and the Midwest

REITS are stabilizing balance sheets and riding a strong market, yet buying opportunities have yet to materialize for industrial REITs.

The storyline with REITs has been overwhelmingly positive as the sector has outperformed the S&P 500 for several months. According to NAREIT, in the first quarter the firm’s all REITs Index delivered a total return of 9.57 percent, while the S&P 500 experienced a 5.39 percent return.

However, the same can’t be said for industrial REITs. That sector has experienced a 5.26 return year-to-date, underperforming when compared to other segments of the industry.

That may all be changing soon as key figures for industrial activity have recently swung into positive territory, causing some firms to declare that the industrial industry has indeed bottomed out and is beginning to work its way back up.

Macquarie Securities tracks demand drivers in the industrial market, such as trucking volume and global shipping. Last November, the firm upgraded the industrial REIT sector as numbers in container traffic signaled a bottoming and have since been trending positive. Both statistics have been steadily increasing from year ago numbers.

“Container traffic is up 12 percent year-to-year and trucking volumes were up 19 percent in March year-to-year,” says Ki Bin Kim of Macquarie.  “The market is moving in a positive direction, but that hasn’t transferred into REIT performance yet.”

Global shipping is a recent phenomena and it is easy to track numbers and benchmark them. Prior to 2008, the industry had never experienced a decrease in shipping volumes. It is still eight percent below 2008 highs.

Kim says that investors still favor short term investments such as apartment, storage and hotel REITs, but that industrial REITs are a relatively inexpensive buy right now and trending in the right direction.

As firms wait for the market to rebound, many REITS have spent time stabilizing balance sheets in preparation for coming buying opportunities.

First Industrial Realty Trust has reduced its total debt outstanding by roughly $200 million using proceeds from asset sales, new equity issuances, and secured financings, according to Scott Musil, acting chief financial officer at First Industrial.

“In terms of extending our debt maturities, since the beginning of 2009, we successfully reduced the amount of senior notes due by 2012 from $725 million to approximately $225 million,” says Musil.

The big question in the industry is when the acquisitions will begin. The bid-ask spread is still too disjointed for many buyers, which has kept many on the sidelines, even those who publicly announced they wanted to purchase.

The sector is relatively stable when compared to office or retail properties, as spec development has crawled to a halt and the owner pool consists of many large corporate users.

As conditions improve, many expect buying to begin very soon.

“We expect to see more transactions in the industrial market in the coming months, as the bid-ask spread narrows between buyers and sellers,” says Johannson Yap, chief investment officer with First Industrial Realty.  “We also believe that transactions will beget more transactions, as more comps are established to provide benchmarks to give buyers and sellers comfort on pricing. The acquisition market for buildings leased to reliable tenants in good markets is very competitive, and pricing has been good, which has positive implications for values for owners of leased assets.”

Tags | Chicago, First Industrial Realty Trust, industrial, REITs

© 2011 Real Estate Communications Group. Duplication or reproduction of this article not permitted without authorization from the Real Estate Publishing Group. For information on reprint or electronic pdf of this article contact Mark Menzies at 312-644-4610 or menzies@rejournals.com