REIT Run Goes the Distance

So far this year, private equity real estate funds have raised $38 billion globally, up from $37 billion for 2005, according to Private Equity Real Estate magazine. The publication estimates another $45 billion of funds are currently in the market or planning to come to the market in the near future.

This number only applies to "value-added" or "opportunistic" funds like Blackstone that are chasing mid-teens to 20% returns and doesn't include the billions sitting on the sidelines by institutional investors and pension funds looking to invest in stable real estate (whether in REIT stocks or direct properties).

"Fund raising is still fairly hot right now. There is still a significant amount of capital in the pipeline for real estate funds," says Gary Koster, the Americas leader of real estate funds services with Ernst & Young, which tracks private equity real estate funds. "Institutions are saying, 'We don't want our money back, just plow it into the next fund and make a 30% return again.' "

That's good news for REIT investors.

"It's hard to imagine REIT prices dropping substantially as long as there's this wall of money out there," says Mike Kirby, director of research with Green Street Advisors. "You're going to have money coming through private doors find its way into the cheap public real estate."