Public real-estate companies sold more U.S. commercial properties, excluding office buildings, than they bought in 2001, decreasing public ownership of commercial real estate for the second consecutive year. But so far this year, such firms are doing more buying, and that may help prop up prices.
According to a study by Prudential Real Estate Investors expected to be released Wednesday, public entities last year owned about 12.5% of the $3 trillion U.S. commercial real-estate market the investment-management firm covers, down from 12.7% in 2000. Public ownership of malls last year fell 1.4 percentage points from 2000 to 33%. Public holdings of warehouses declined one point to 9.7%, hotels fell 0.9 point to 17%, and other retail besides malls declined 0.3 point to 12.5%. Public ownership of apartments fell for the third straight year, dropping 0.3 point to 8.5%.
Only the office sector saw a gain in public ownership in 2001, up 0.2 point to 7.6%. The study, which is limited to larger, institutional-quality properties, excludes research-and-development facilities and so-called flex industrial space, free-standing retail space and niche sectors such as self-storage.
Now, the trend has reversed itself this year so far, according to research by Real Capital Analytics Inc., a New York-based research firm. Its data show the publicly traded real-estate investment trusts buying again after mostly selling in the past two years.
In the first half of this year, REITs and publicly traded real-estate operating companies purchased nearly $3 billion more in properties than they sold. Preliminary data since July indicate that REITs may add an additional $2.4 billion of assets in the current quarter.
"REITs are adding to the competition for high-quality assets," says Robert M. White Jr., president of Real Capital Analytics, "and that's resulting in a fairly competitive market. It's affecting the pricing of properties."
Youguo Liang, managing director of research at Prudential Real Estate Investors, a Parsippany, N.J., unit of Prudential Insurance Co. of America, says the share of public ownership of commercial real estate is likely to go up for the year. "First, the strong REIT market has created an environment for initial public offerings," he says. "Second, REITs are trading at a marginal premium to [the underlying value of their assets]. Therefore, we expect more capital to be raised by REITs, which will be eventually used for acquisition purposes."
As their stock prices have risen over the past two years, REITs have increased their capital-raising activities. They have raised $13 million in proceeds so far this year through equity and debt offerings and one IPO, that of Heritage Property Investment Trust Inc., in April, according to the National Association of Real Estate Investment Trusts. They raised $18.8 million last year, up from $10 million in 2000.
Increased public ownership of real estate means individuals can own a greater share of U.S. property through the stock of public companies. Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern Californiacolor>, based in Los Angeles, says it can give the industry more transparency, as public owners have to report key figures every quarter while private owners aren't required to disclose anything about their operations or properties.
Write to Ray A. Smith at ray.smith@wsj.com