U.S. real estate investment trusts have and continue to outperform the equity market over the past few years.
U.S. REITs continued to solidly outperform the broader equity market in July, the first seven months of 2012 and on a 12 month basis ended July 31.
On a total return basis, the FTSE NAREIT All REITs Index gained 2.30% and the FTSC NAREIT All Equity REIT Index gained 2.17% in July, while the S & P rose 1.39%.
For the first seven months of the year, the FTSE NAREIT All REITs Index was up 18.08% and the FTSE NAREIT All Equity REITs index was up 17.40%, compared to the S & P 500's gain of 11.01%.
On a 12 month basis, the FTSE NAREIT All REITs Index delivered a 14.79% total return and the FTSE NAREIT All Equity REITs Index delivered a 13.72% gain, compared to the S & P 500's gain of 9.13%.
Almost all sectors of the U.S. REIT market delivered double-digit gains for the first seven months of 2012.
Retail was the top performing sector with a 23.57% total return, led by the Regional Mall subsector with its 25.11% return.
The Industrial sector was up 16.54%; Office was up 13.79%, and Apartments were up 13.30%.
Among other equity REITs, the Infrastructure sector was up 20.80%; Health Care was up 19.81%; and timber REITs were up 18.31%.
The FTSE NAREIT Mortgage REITs Index gained 23.18%, lead by the Commercial Financing sector with a 24.01% gain.
The definition a real estate investment trust (REIT) is a company that owns, and in most cases, operates income producing real estate. A number of REITs also engage in financing of commercial real estate. Over the past few years a number of REITs which are categorized as office, retail and residential rental have pursued alternative investment opportunities to increase their profitability as well as their stock performance.
For example, SL Green Realty Corp is a REIT that predominantly acquires, owns, repositions and manages Manhattan office properties. The REIT focuses primarily in managing and maximizing value of Manhattan commercial property as well in debt and equity interest in retail. The Company owns more than 30 New York City office properties totaling over 22 million square feet. In addition, the Company holds investment interests, among other things, in retail properties encompassing approximately 400,000, development property and land interest, along with ownership interests of over 30 suburban assets totaling more than 7.5 million square feet in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey.
In August, the company announced that it formed a joint venture with Stonehenge Partners that will enter into a 99 year ground lease covering a residential building at 1080 Amsterdam Avenue. The property is an 82,250 square foot, 20 story pre-war elevator building, located just south of Columbia University's campus, at the northwest corner of Amsterdam Avenue and West 113th Street. The building was most recently utilized by St. Luke's Hospital Center to house hospital staff. The joint venture plans to redevelop the property into a luxury residential building. Earlier in the year, the same joint venture closed on the acquisition of seven commercial and multifamily properties. One of the properties included 724 Fifth Avenue, a 12 story building that currently include Prada Retail space and several floors occupied by gallery tenants. In February, the REIT announced the closing of the acquisition of 724 Fifth Avenue in a joint venture with Jeff Sutton one of New York City's most creative and active developers of retail properties.
SL Green is an active participant in debt and preferred equity investments. During the six months ended June 30, 2012, their debt and preferred equity investments (net of discounts) increased approximately $159.1 million, due to originations, purchases, accretion of discounts and paid in kind interest. As of June 30, 2012, the aggregate weighted average current yield was approximately 9.53%.
The REIT has also entered into the student housing sector. In 2011, the REIT announced a partnership with Jeff Sutton and Israel based Harel Insurance and Finance in a Joint venture partnership to develop a building featuring high end retail space and student dormitory housing for Pace University at 180-182 Broadway and 2 John Street. Under the agreement with Pace University, the joint venture partnership will develop a 24 story building at the site and then convey a long term ground interest to Pace University for 20 floors of student housing. The joint venture will lease the balance of the space to upscale retail tenants.
In August, Harel Insurance Investment and Financial Services entered into a joint venture with SL Green Realty Corp to build a second student dormitory resident for Pace University at 33 Beekman Street in downtown Manhattan. This new building follows construction by partnership for the 609 bed dormitory for Pace which the joint venture began construction in 2011 at 180 Broadway.
New Jersey based Mack Cali Realty Corporation is one of the largest office REITS. As of June 30, 2012 the company owned or had interests in 277 properties, with approximately 32.2 million square feet plus developable land for approximately 10 million square feet. Last December, the REIT and Iron state Development Corporation to develop luxury multi-family rental tower at the Harborside Financial Center on the Jersey City Waterfront. The first phase of the development is a 69 story tower built on a parking pedestal which will contain approximately 766 residential units. The building with an anticipated fourth quarter 2012 ground breaking is on land currently owned by the REIT.
In July the REIT entered into a ground lease with Wegmans Food Market for an undeveloped site located on Sylvan Way in Hanover Township, New Jersey. Wegman's will construct a 140,000 square foot market on the pad. The REIT plans to ground lease the remainder of the 40,000 square foot site for retail uses.
In February, the REIT along with Winthrop Realty Trust entered into a joint venture which acquired a senior mezzanine loan in the capital stack of a 1.7 million square foot class A portfolio of Stamford Connecticut for $40 million.
One of the largest owners and managers of commercial real estate in the United States with a portfolio over 100 million square feet is Vornado Realty Trust. The portfolio is preliminary located in New York and Washington, D.C. areas. The company's core businesses include New York office and retail properties; Washington, D.C. office properties, and, Retail properties in the northeast states, California and Puerto Rico.
The company is also the owners of the 1,700 room Hotel Pennsylvania on Seventh Avenue across the street from Penn Station and Madison Square foot, which the company plans to, redevelop into retail and office space. It also owns a 32.4% interest in Alexander's Inc, a retail which owns seen office and retail properties in greater New York metropolitan area.
The company has gained additionally profitability by its ownership interests in other real estate investments which include:
- A 25% interest in Vornado Capital Partners, an $800 million real estate fund, that the company is the general partner and investment manager of the fund.
- A 32.5% interest in Toys "R" Us, Inc;
- An 11% interest in J.C. Penny Company, and
- Other real estate and related investments, including marketable securities, mezzanine loans on real estate and a 26.2% equity interest in LNR Property Corporation, an industry leading mortgage services and special servicer.
As of June 30, 2012 the company total amount of mezzanine loans receivable was $132,369,000. These loans have a weighted average interest rate of 9.53% and maturities ranging from August 2014 to May 2016.
These real estate investment trusts and their peers have and continue to seek alternative investments in increase the value of their companies and provide dividends to their REIT holders.
Residential Mortgage rates decline to record lows as the Dow close to reaching record high
Fall has arrived with the Dow Jones close to its record high of 14,164. On the opposite spectrum, instead of reaching record high, the rates for residential mortgages are reaching record lows.
On Thursday, September 20th, the survey released by Freddie Mac showed the 30 year, fixed rate mortgage averaged 3.49%, down from last week's 3.55% and matching its all time low set in July. Last year at this time, the 30 year fixed rate mortgage averaged 4.09%.
The 15 year, fixed rate mortgage, set a record low averaging 2.77% falling from 2.85% last week. A year ago, the average for the 15 year fixed rate mortgage was 3.29%.
The rates for the five year, Treasury indexed, hybrid adjustable rate mortgage averaged 2.76%, up from 2.72% last week and falling from 3.02% a year earlier.
Borrowers for a one year, Treasury indexed adjustable rate mortgage averaged 2.61%, the same as last week and down from 2.82% last year.
Web site MSN Money, reported that with the Federal Reserve move last week to buy $40 billion every month in mortgage backed securities, in the program, known on Wall Street as "QE3", will likely lower interest rates for mortgages and also help some people refinance their home loans at perhaps even lower rates.
According to Bankrate.com's Gregory McBride, the continuing debt crisis in Europe and the slow recovery of the American economy will contribute in keeping mortgage rates "at or near record low levels for the foreseeable future."
Most industry leaders believe that the lowest possible rate would be in the range of 3.25%, not a significant difference from the record low rates which are currently available.
The Mortgage Bankers Association reported that the total number of mortgage applications slipped 0.2 percent.
Applications by borrowers to refinance their home loans increased 1 percent last week to 81 percent of all mortgage applications, an all-time high. To put that in context: From 2005 to 2007, refinancing made up less than 44 percent of the total mortgage applications.
One reason why fewer borrowers are seeking new mortgages is that banks have tightened lending standards. Many people who want to buy a home do not qualify because of poor credit histories.