The Globe and Mail published an interesting article recently. They indicated that this year sees the 20th anniversary of Canadian real estate investment trusts, better known as REITs. Born out of the commercial real estate collapse of the early 1980s and 1990s, REITs became an alternative to prospective investors who had little else to rely upon at the time. Memories of that time remain grim, as industry giants like Cadillac Fairview fell on hard times, and some, such as Olympia and York, had to declare bankruptcy. Values were at an all-time low due to a consistent rate of bankruptcy and a severe lack of liquidity from all sources.
The original REITs were open ended mutual funds that made it easy for investors to buy in. as property values plummeted however, investors cashed out due to the weak market. By 1993, these open-ended funds were made close-ended and listed on the TSX. Through this process, the REIT was officially born. At the time of its inception, REITs were still an unknown quantity in Canada. To the majority of the market, they were a niche retail product that was still a few years away from reaching mainstream acceptance. It did not help that the commercial real estate market throughout the 1990s was hesitant and slow to get going due to what had happened just a few years ago. It would be 2005 before REITs were embraced with open arms, and this happened largely due to the collapse of the tech bubble. Companies with hard assets gathered a lot of demand. REITs continued to gain momentum, especially after the financial meltdown of 2008 with historically low interest rates.
Presently, REITs have reached a level of popularity where even the retail sector has gotten in on the action: industry-leading companies like Loblaw, Hudson Bay Company and Canadian Tire are offering or contemplating on offering. However, industry observers suggest that REITs might be reaching their inevitable peak with this movement. Volume of acquisitions for REITs have tumbled as IPOs and financing become more difficult. Time will tell where REITs will be a year or two from now.
Source: The Globe and Mail
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