The Reit time again
You have to feel sorry for real estate investment trusts. Within two years of the first nine British property firms converting to Reit status, the popping of champagne corks was replaced by covenant breaches, rights issues and even one significant takeover.
The 'correction' quickly soured into a crash and the rest, as they say, will go down, like Lehmans and Bear Stearns, in history.
Reits are the same as any other traded shares except they offer a tax wrapper for listed commercial property firms that removes the double taxation of corporation tax. Tax is still paid on the dividend by the investor, but not by the Reit itself, which essentially means there is more money to distribute to shareholders. Indeed, after converting to a Reit, British Land, owner of much the City, saw its dividend double.
But the stumbling block now for Reits is that their rather short history has been particularly chequered. Practically from day one, at the start of 2007, the share prices did nothing but fall. Most people concede that this drop in Reits' values was bad luck rather than bad timing or anything to do with the regime itself.
"People correlate UK-Reits with the poor performance of the last two years," said Leonard Geiger, vice-president of fund managers Cohen and Steers. "It was just bad luck; it is nothing to do with the Reit structure, just unfortunate timing."
While it is a consensus view, Charles Beer, partner for real estate tax for KPMG, has a slightly different take. "It is a bit more than bad luck," he said. "There was a sort of inevitability that the case for Reits would be strongest at the peak of the market. The expectation of Reit status for the big property firms boosted their share prices even more just as they hit the top, which meant that they had further to fall once the market turned."
Indeed, no one could have predicted an axe would be taken to the world markets soon after Reits came in, and while confidence in the markets is yet to be restored, most people stand pretty firm behind them.
There are signs that the tide is turning. "This recession has been a remarkably benign one considering the entire world finance system was teetering on the brink," said Harry Stokes, real estate analyst for Evolution Securities.
While there are still question marks over whether retail investors should dip their toes back into Reits, demand for commercial property, like equities, seems to have regained a sure footing.
"There's lots of demand, lots of capital from sovereign wealth funds and other foreign investors and a lot of people wanting to get into UK real estate," said Mr Stokes. "Up until now you hve had a number of big sellers who are now saying they are looking to buy."
One of those 'big sellers' is Land Securities. The country's largest Reit recently off-loaded its share of Birmingham's Bullring shopping centre for £210m, building up its war chest for the year ahead.