ABKB LaSalle managing director Keith Pauley observed that much of the industry's growth was financed by the broad market investor rather than by dedicated real estate funds. This led to the illusion two years ago that REITs were, or could be, growth stocks. But Pauley points out that REITs are basically income stocks, with growth characteristics only during the recovery portion of the real estate cycle. The problem, beginning two years ago, notes Pauley, was that too many REITs took improper risks. In any event, it is no longer possible for REITs to engage in such gimmicks as forward equity contracts and unit investment trusts.
Investors are simply too skeptical now.
The market, at the end of the day, appears to be telling the industry that it knows REITs are not growth stocks. It appears, based on the talk at the conference, that the industry is listening.