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). 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), 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), recently bought Arden Realty, a publicly traded REIT.

So what's different now? Jonathan Gray, senior managing director with the Blackstone Group, said cheap debt remains the driving factor for privatizations. In the public markets today, the cost of equity is higher than that of debt. So if a private equity fund can use 80%, or even 90% leverage on a deal -- and a public company like GE or any major REIT can only use 50% debt -- then private equity players have a lower overall cost of capital, Gray said.

The debt for such deals is typically sold off in the form of commercial mortgage-backed securities and collateralized debt obligation issuances. The privatization wave stops only when CMBS and CDO deals go bad and investors start losing money, panelists agreed.

"There certainly seems to be no limitations on the size of deals, particularly on the private equity side," said Ronald Kravit, managing director of Blackacre Capital Management. Kravit should know. Blackacre is an affiliate of Cerberus Capital Management, which recently announced it would purchase 51% of GMAC, the financing arm of General Motors ( GM).

However, pure real estate deals are harder to land and often involve consortiums to spread the risk, Kravit said. Blackacre has recently looked at a couple of very large pure real estate deals, but the $5 billion to $8 billion equity commitments would've been difficult to pull together, he said.

But Kravit admitted that the line of money ready to invest in real estate on the private equity side won't dwindle, unless there's a huge event like a major terrorist attack or war. "As long as there's cheap debt available, that's what's going to drive the privatization," he said.

Several investment bankers said that the high prices of REIT stocks continue to stifle the privatization deals of late. But what could possibly help the deal flow is the fact that a lot of REIT management teams fear a 20 to 30% selloff in REIT stock prices this year, and they don't feel like riding out another down cycle in real estate, one banker told TheStreet.com. This could motivate some REITs to cash in on the good times now and take their companies private, the banker said.

Echoing this sentiment was Jeffrey Kelter, the former CEO of Keystone Property Trust, a formerly public REIT that was bought by ProLogis ( PLD) in 2004. He told the audience that every REIT chief executive may consider himself to be a genius, but at the same time is wondering how his stock has managed to jump so high in price.

Mills Fate in Focus

A list of rumored buyers for troubled mall developer Mills Corp. ( MLS) were at the NYU conference, but lips remained sealed.

Vornado Realty ( VNO) CEO Steve Roth told TheStreet.com he wouldn't comment on Mills or Vornado's possible interest in the company's Meadowlands Xanadu project in New Jersey.

When asked about his interest in Mills, Simon Property Group ( SPG) CEO David Simon told TheStreet.com: "It is a very complex situation. We continue to monitor it and look at things. They have some good assets. We could manage a Mills property."

Directors from ING Clarion, Blackacre/Cerberus and Blackstone all declined to comment on whether their firms were interested in Mills.