Media Coverage
Source: Law360
Media Coverage
07.22.13
In June, Federal Reserve Chairman Ben Bernanke said that the Fed is considering slowing its $85 billion-per-month bond-buying program later this year. These purchases have kept interest rates at historic lows. However, many worry that as cheap money dries up, investors will be less drawn to real estate investment trusts (REITs). REIT stocks have not fared well since Bernanke initially hinted that the Fed might trim its bond-buying.
While some stocks have rebounded, any investor pullback is troubling, said Jeffrey Grill, the Washington, D.C.-based co-leader of Pillsbury’s REITs and real estate capital markets practice.
Because REITs are required by law to return 90 percent of their income to shareholders — it's the price they pay for tax perks — they keep little cash on hand, he explained. So when they want to buy something, they have to go raise money.
Grill argued that rising interest rates could hit them twice through more expensive debt and waning demand for their equity. “REITs are more dependent on the capital markets than almost any other type of issuer. Lower equity demand, along with higher borrowing costs, would certainly impair their ability to finance the kind of activity we've been seeing.”