By Jada A. Graves

1. As we near the mid-point of 2007, what are the biggest factors impacting the REIT market?

There are two developments that have impacted 2007 thus far. First is the continued evolution of the commercial mortgage backed securities (CMBS) market. Leverage, loan amount and concentration no longer seem to concern underwriters given the market liquidity for CMBS deals. The collateralized debt obligation (CDO) market has enabled mezzanine and B lenders to lay off their risk, yet keep high coupon residual pieces of paper for their own portfolios. We see interest reserves back in fashion and a willingness on the part of securitization lenders and investors to buy the dream.

The contested battle between The Blackstone Group and a consortium led by Vornado Realty Trust (NYSE: VNO) for Equity Office Properties Trust was a great example of liquidity. Terms and leverage were very aggressive to both buying groups along the follow-on buyers of Blackstone's Equity Office portfolios, such as Macklowe Properties, Shorenstein Properties LLC, Beacon Capital Partners and Maguire Properties, Inc. (NYSE: MPG).

The second major development is the continuation of U.S. dedicated real estate investors buying global property companies in regions like Brazil, Russia, Japan, China and India. There continues to be reinforcement that real estate is an institutional asset class and investors are trying to balance their supply of managed capital with the limited U.S. public real estate market.

Due to this phenomenon, sovereign risk premiums seem to be declining for U.S. investors. Ninety percent of loan-to-value buyers have a better cost of capital than current public companies, which will selectively continue to go private. That, in turn, will create more U.S. investment overseas into newly listed real estate companies.

2. Looking over the past 10 years, what trends have you seen regarding performance from the various REIT sectors?

The retail and industrial sectors are the most consistent in revenue and net operating income. Because of this consistency, these two sectors have been favored by institutional investors.

In the past 10 years, the hotel and office sectors have experienced more volatility in revenue and cash flows than other property sectors. For hotel REITs, this volatility can be explained by the nature of the companies' revenues and cash flows. Hotels lease rooms on a daily basis; therefore, the rent on the leases rolls over each night.

Office rents, on the other hand, seem to be moving upward given the continued improvement in economic growth and the settling of technology's impact on office productivity. The office companies are trying to expand on revenues and sales, and this has a direct impact on rent growth. In addition, new construction has been limited in both the hotel and office sectors in the past 10 years, which has benefited them.

3. In today's marketplace, what is the biggest advantage for an investor looking to invest in REITs instead of direct investments for their real estate allocation?

Transparency is the biggest safety net for today's REIT investor. Sarbanes-Oxley, sell side analysts and even the Internet have enabled investors to gain insight into rents, new trends/supply, values, etc.

When sectors go out of favor or a public REIT announces issues due to external factors, the investing and lending community know about it in real time. This tends to moderate extreme swings in this industry.

4. What real estate professional (past or present) has shaped the modern REIT industry the most and why?

There are so many individuals who've shaped this industry, but if I had to pick one it would be Sam Zell. His drive and vision of a public securities market for real estate companies has resulted in some of the largest companies in the U.S. and abroad. Capital Trust, Inc (NYSE: CT), Equity Lifestyle Properties, Inc. (NYSE: ELS), Equity Residential (NYSE: EQR) and the former Equity Office Properties Trust have been successful offspring of internally advised companies.

Others in the industry have pursued the external advised structure for private companies, but Zell has consistently advocated internal structures, transparency and quality.