In wake of Fed’s stimulus scaledown announcement, U.S. REITs experience largest drop in 19 months

U.S. real estate investment trusts saw their greatest drop in 19 months after the Federal Reserve’s announcement that it could scale back bond purchases this year, Bloomberg News reported. The Fed’s statement led to fears that rising interest rates would hike up acquisition and refinancing costs.

The Bloomberg REIT Index declined 3 percent, the most since November 2011. Ben Bernanke, chairman of the Fed, said yesterday that policy makers may end the purchases in mid-2014 if the economy continues inching to resuscitate. REITs rely on the capital markets for financing and development costs, as they are required by law to pay most of their taxable earnings out to shareholders.

“The cost of capital, both debt and equity, is really important,” Jim Sullivan, a managing director at Green Street Advisors, a real estate research firm, told Bloomberg News. “That’s a strong headwind for any industry that’s capital intensive, including commercial real estate.”

In the first quarter of 2013, most New York-focused REITs – with the exception of SL Green Realty – lagged behind their national counterparts, as The Real Deal reported.  [Bloomberg News] — Hiten Samtani