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DEAL BAROMETER: WHO IS PAYING
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U.K. gets REITs — and investment fever

Britain rang in the new year with a much anticipated new financial structure for property owners: the real estate investment trust. “The tax efficiencies afforded by this change in status will result in an enhanced future dividend,” said Frances Salway, CEO of U.K. Land Securities, which owns 200 U.K. properties, including Manchester’s Bullring (right). Market watchers say investors drove up the shares of companies expected to become REITs by an average of 45 percent last year, beyond the actual value of the real estate involved.

Behemoth or boutique?

Real estate services providers are getting bigger. Witness CB Richard Ellis’ $2.2 billion purchase of Trammell Crow last year. But what does this mean for retail property owners and operators? It depends on who you ask.

“It’s possible to cover a lot of markets and still have local expertise,” said Michael Dee, national director of Grubb & Ellis’ retail group. The specialists are indeed experts in their markets, backed by the full weight of a sophisticated research organization, says Dee. (Grubb & Ellis, along with its affiliates, employs about 250 retail specialists nationwide.) “Shopping center owners and developers need to keep in touch with their markets on a day-to-day basis,” he said. “And so much of our work is helping them do so, tracking the movement of retailers — where the next residential boom might be, where the investment market is going.”

Smaller real estate services providers beg to differ. The advantage of a boutique firm is that top talent in real estate tends to be highly entrepreneurial, says Bruce A. Kaplan, president of Chicago-based boutique Northern Realty Group, and if such a firm doesn’t offer top talent, it won’t last long. “There are good people in the large organizations, of course, but real estate is a business made for entrepreneurs,” he said. “The very best don’t need the corporate structure.”

HOUSING COOLS, BUT NOT RETAIL

The shopping center industry will grow this year, despite a cooling housing market, experts predict. Fewer homeowners will tap into home equity through refinancing and loans, cautions Robert Bach, senior vice president of research and client services at Grubb & Ellis. Also, some retail developments may get delayed until home sales pick up, says Bach. But “never underestimate American consumers,” he said. “They will find a way to keep spending.” Retailers are counting on that, says Lorraine Maikis, a Merrill Lynch retail analyst. U.S. specialty chains are slated to grow their footage by 5.2 percent this year, she says. With the nation’s inventory of malls growing at less than 0.5 percent per year, that means rent rates will remain stable at existing malls. Steve Sakwa, a Merrill Lynch REIT analyst, predicts that owners of high-end malls will generate same-store net operating income growth of about 3 percent this year.