Private Equity Leads REITs

Private equity firms have jumped to the forefront of the REIT privatization wave, and major industry players say the firms will stick around as buyers so long as cheap debt remains plentiful.

Since the beginning of 2004, there have been 15 REIT privatizations, with the biggest being the Blackstone Group's recent $5.6 billion purchase of office owner CarrAmerica (CRE Quote). All of the buyers were private equity firms or other institutional investors, which raise funds from endowments, pension funds and wealthy individuals. Their common trait is that they can employ large amounts of debt and are able to flip properties quickly -- two things public REITs can't do.

At the New York University REIT Symposium Wednesday, Andrew Jonas, managing director at Goldman Sachs(GS Quote), said the CarrAmerica deal was almost unimaginable two years ago because of the $900 million of equity that was used. Two years ago, a large player like GE Real Estate likely would have been the only investor able to fund that level of equity, he said. GE Real Estate, a unit of General Electric (GE Quote), recently bought Arden Realty, a publicly traded REIT. ...