Some of the top people in the real estate investment world don’t think Congress is going to do much to upset the barrelling growth of REITs, which have zoomed in market capitalization from around $13 billion in 1991 to $160 billion today.
REIT shares, after a three-year takeoff, have hit turbulence since late last year. That’s partly because the commercial real estate market may be reaching a plateau after its rebound from the previous recession. But it’s also because the Clinton administration spooked the industry by proposing new laws to curb the trusts.
The initiative grew out of complaints that some REITs were abusing their status as “passive income” real estate companies paying no corporate tax by trying to add subsidiaries carrying on active businesses that ordinarily would be subject to the tax.
One proposed provision to halt a few publicly traded “paired-share” companies, which have an easy and some say unfair way to shelter their non-real estate business operations, is probably going to become law, leaders in the field say.
“It’s likely that something will come out” of Congress as part of an Internal Revenue Service reform bill, said Steven Wechsler, president of the Washington-based National Association of Real Estate Investment Trusts.
But Wechsler, whose group opposes any change to REIT regulations, said he hasn’t seen any movement in Congress yet to act on other administration proposals, including one that might affect the ability of a much wider group of REITs to operate ancillary businesses.
And Gerald Haddock, president and CEO of Ft. Worth-based Crescent Real Estate Equities, a $6.7 billion capitalization REIT that is one of the nation’s biggest, says congressional interest in the REITs’ business structure will fade fast.
“There are a few hostages being taken,” he told members of the Urban Land Institute in Denver last week, referring to the paired-share group, which includes Starwood Hotels & Resorts, the giant hospitality REIT that owns several hotels in the Chicago area.
But after Congress takes that bite, the political climate may improve, and “everybody goes away,” he said. “We’ll figure it out.”
Wechsler, on a visit to Chicago, said the legislative attention is a consequence of the growth of REITs, which have come out of hibernation to become a Wall Street phenomenon over the last three years.
Though they own only 8 percent off all U.S. commercial real estate, REITs have been identified with blockbuster real estate moves, including Starwood’s acquisition of ITT Corp. and its Sheraton Hotel chain and financier Sam Zell’s campaign to be the biggest or near-biggest owner of top-tier office buildings in the nation’s major cities through his Equity Office Properties Trust.
“People are trying to get a sense of the full dimension and scope of REITs and to determine what is consistent with underlying REIT rules,” Wechsler said.
“We are in the midst of a transformation of commercial and multifamily real estate from private to public ownership, and it’s taking place through REITs,” he added. “The REIT industry is the real estate industry and the real estate industry is the REIT industry.”
Identity crisis: Mergers and acquisitions are as big a job boon to business card printers as changing area codes.
CB Commercial, the leading Los Angeles-based real estate services firm that is one of the Chicago area’s top commercial players, with 330 employees here, will henceforth be known as CB Richard Ellis in consequence of its merger with London-based REI Ltd., a premiere international company that operates outside Britain as Richard Ellis.
CB’s property management unit, which has been known as CB Commercial/Koll Management Services (the result of a previous merger), also will go under the CB Richard Ellis name.
CB’s identity pivot doesn’t match the intricate dance of another leading Chicago firm, however. In the space of a year, successive mergers turned Frain Camins & Swartchild to Insignia/FCS to Insignia/ESG. Fortunately, the area code remained 312.
The CB-Richard Ellis deal adds up to a global network with 200 offices in 29 countries, which the company says makes it the largest vertically integrated commercial real estate services firm in the world.
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That means it can call itself whatever it likes.
Lincolnshire lot: McShane Corp. of Rosemont said it will develop a 21-acre site in Lincolnshire to be known as Enterprise Point, suitable for light manufacturing, distribution, R&D or office use.
Adjacent to Lincolnshire Business Center about a mile from Milwaukee Avenue, the property is one of the last large commercially developable sites in southern Lake County, according to leasing agent Hank Mawicke of Colliers, Bennett & Kahnweiler.