Mortgage REITs have been getting plenty of attention lately. Their proponents--the sponsors and Wall Street bankers--tout them as a solution for providing the real estate debt markets with desperately needed liquidity. And yes, they may provide some funding to refinance borrowers with few other available sources in the parched mortgage markets. But given the $300 billion or so in loans that need refinancing over the next five years or so, the $3 billion in mortgage REIT IPOs won't make too much of a dent. Still, something may be better than almost nothing.
Really, mortgage REITs are a pure and simple opportunistic play. The idea isn't to rescue borrowers, it's to take advantage of them. These vehicles will not only originate new loans at healthy spreads, but also invest in busted CMBS portfolios and pools of failed bank mortgages.The idea is to buy into markets at lows and ride the cycle back up. Doesn't sound too revolutionary or necessarily too benevolent, does it?
Mortgage REITs mark the first foray by Wall Street back into commercial real estate after their drubbing in the CDO/CMBS debacle. The next gambits will be IPOs for equity REITs to bail out failed developers and private real estate owners with large real estate holdings now under water. That's the same playbook dusted off from the early 1990s when some major players were veering into bankruptcy. Presto chango they gave up private control to retain some measure of their fortunes in public companies and lived on to reap large gains in the most recently ended up cycle.
Mortgage REITs historically haven't fared too well. They can do okay early on at cyclical lows, but can get whipsawed by external economic factors like rising interest rates. Early 1970s and mid 1990s iterations eventually were hammered into oblivion.
Like any opportunistic play--investors need to be wary market timers. Mortgage REITs aren't about liquidity or long-term investing. They're about making a quick buck.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
