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Real Estate Resiliency: the 'REIT Model' Proves its Mettle

August 30, 2012

 

Real Estate Investment Trusts (REITs) have not only survived one of the worst real estate downturns in modern history, but have actually been thriving during the past several years.

-Josh Olazabal, vice president, credit research group, PIMCO
-Amit Arora, senior vice president, PIMCO

  • REIT unsecured debt has been one of the best-performing sub-sectors in the entire investment-grade credit area.
  • When insurance companies began to look at REIT unsecured debt, they asked for the same type of covenants associated with property-level mortgages. These requirements have coalesced into a standard REIT covenant package.
  • We believe low default rates and relatively high recovery rates make the sector attractive over the long term - particularly for buy-and-hold investors.

Real Estate Investment Trusts (REITs) have not only survived one of the worst real estate downturns in modern history, but have actually been thriving during the past several years. How is this possible, given the depths and persistence of the housing and commercial property market meltdown? In our view, this resiliency can be attributed to a number of attributes, which PIMCO collectively refers to as "the REIT model."

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Josh Olazabal, Amit Arora