US REITs still affected by weak market

While some pockets of the nation are seeing modest commercial real estate market recovery, the fundamentals are still weak and real estate investment trusts should not simply count on the economic recovery to lift their results, according to a new white paper released this week by Grant Thornton, Crain’s reported. The white paper notes that many real estate companies that performed well prior to the recession are not guaranteed to be equally strong performers post-recession. Much of this divergence is due to REITs diversifying their real estate portfolio without properly understanding the new markets in which they were entering. “Just because a company goes into the real estate market on top at the beginning of the cycle doesn’t mean it’ll come out of this slump in the same position,” said Paul Melville, the author of the white paper and a partner at Grant Thornton. Although fundamentals are soft, Melville predicts that 2011 will be better for the commercial real estate market and for those REITs who are proactive with their investments. [Crain’s]

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