December 23, 2015
NAIOP's Development magazine publishes "Going Public: The Ins and Outs for REITs," by Assurance Services Director John McCarthy.
Taking a REIT public involves numerous risks as well as rewards.
THE POPULARITY OF real estate investment trusts (REITs) as an investment vehicle in today's marketplace has made the opportunity for REITs to become publicly traded companies more enticing. Publicly traded REITs offer investors direct access to a traditionally illiquid asset class and relief from what used to be a reputation of high transaction costs and high investment minimums. According to the MSCI World Index, as of December 31, 2014, REITs represented 2.71 percent of world market capitalization, a large increase from years past. Raising money for the expansion of operations, to increase the market value of a company and to boost liquidity for existing owners and shareholders are some of the reasons a REIT might want to turn to the public markets.
But there are challenges as well. The upfront work involved in "going public" can be expensive and time consuming, which may divert management's focus away from day-to-day operations. Surrounding the REIT with competent staff and outside professionals is often not a slam dunk, nor is it a certainty that the REIT's infrastructure will enable it to be prepared for scrutiny by the Securities and Exchange Commission (SEC) come initial public offering (IPO) time. In addition, the REIT must satisfy significant compliance and qualification tests.