Once upon a time, commercial real estate was owned by individuals, families and small businesses. That’s not the case any longer, as an ever-increasing share of commercial real estate is taken over by public companies.

Real estate ownership by public companies increased in almost every major property type in 1999, according to a study released by Prudential Real Estate Investors. The study indicates increased penetration by public companies in the office building, hotel, warehouse, regional mall and non-mall retail center sectors. Only the apartment sector did not see an increase in ownership by publicly held companies.

“While the pace slowed, the data shows that the long-term trend of increasing public ownership in real estate is very much alive,” said Youguo Liang, managing director and head of Investment Research at Prudential Real Estate Investors. “The fact that penetration continued to grow during such a difficult period in the public capital markets demonstrates remarkable resilience.”

Properties changing hands among REITs due to mergers increased by over 50 percent. Merger activity among office and industrial real estate investment trusts (REITs) surged and remained strong for the second consecutive year among apartment REITs.

“While the numbers between 1998 and 1999 show significant differences, the bias toward purchases still existed, with about 1.5 purchases per sale last year,” Liang said.

Liang noted REIT stock prices have shown strong appreciation during the first half of 2000, with prices now at levels close to underlying net asset values. He said if these improving prices can be sustained it may bolster growth rates in acquisitions by year-end.

Speaking of improved performance in the capital markets, performance continues to be strong for hospitality industry players. Hersha Hospitality Trust (AMEX: HT) this week announced that funds from operations (FFO) for the second quarter 22.5 percent compared to the second quarter of 1999. Results were even stronger for the first six months of the year, which saw an FFO increase of 32 percent.

Why the positive results? On top of acquisitions of new properties, Hersha saw increases in both average daily rate and occupancy.

On the darker side of the news, 107 retail spaces in 30 states soon will be vacant, thanks to the impending demise of Stage Stores, which operates Bealls and Palais Royal department stores.

Stage is offering for sale all 107 leases, after filing for Chapter 11 bankruptcy protection in June.

“The rents on many of the Stage stores’ leases are in the single digits, and they are located in central business districts and major retail corridors largely concentrated in South Texas, Mississippi and Louisiana,” said Matthew Bordwin, vice president at Keen Realty.

“Given the price and location of these leases, it is a tremendous opportunity for a retailer who is looking to expand into these areas. A court-approved auction will be set for sometime in September but we have the ability to make deals now and pull properties from the auction," added Mitch Kahn, president of Hilco Real Estate.

Available to users and investors are 23 leases in Texas, followed by eight leases in Mississippi, seven leases in Louisiana, seven leases in Minnesota, six leases in Kansas and six leases in South Dakota, among other states. The store sites range from 5,000 square feet to 35,000 square feet, with the average size being 20,000 square feet. Rents for the locations start as low as $1.50/ square foot.

Published: August 18, 2000

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