Largest Commercial Apartment REIT - How Expectations Influence Hot Sale Of Apartment Property REITs

Real Estate Investment Trusts have seen great returns when the underlying fundamentals have supported increased incomes. This form of real estate investment has shown gains from 6 to 60 percent in a single year. REIT's are not at the top of their game this year though.

The Wall Street Journal says that one of the largest public REIT's may be bought by two private firms: Tishman Speyer Properties and Lehman Brothers Holdings Inc. What do two huge private companies see in one of the largest public REIT's?

Simply, they have an expectation of higher income. Of course, they want more cash to come from the underlying real estate portfolio of the Archstone-Smith Trust. And they expect that increase in income to come fairly quickly. Why are they predicting quick increases in income?

Archstone-Smith Trust is the second largest apartment REIT in the USA. But it's not only their large size that is attractive to buyers. It's also the type of underlying properties that they hold in their portfolio.

Income expectations of apartment REIT's have been in question this year. This sentiment has gained strength because of the prevailing doubts that apartment owners can significantly raise rents. So what is so attractive about Archstone-Smith's apartment portfolio?

Archstone-Smith has concentrated their holdings in dense urban sections of large cities. These apartments have high-rents and are in great locations. You would find it difficult to get the same type of location and benefits of apartment living around each of their holdings. So they have bought and built urban diamonds.

Another attraction is the high expectation of the ability to easily raise rents on these highly desirable apartments. This expectation is so widespread across the investment industry that you should expect to see other firms submit offers to compete with Tishman and Lehman.

When you find an investment opportunity with rising income and the security of real estate, you should expect more people will take notice.