REITs a bright spot for a rocky legal market

This week’s rocky stock market is a familiar but disheartening scenario. A global event (this time a Greek election) creates uncertainty, the stock market plummets, it rebounds a bit but everyone feels nervous and unsure about their long term investment opportunities.

Although most of the events causing uncertainty in the global economy are happening abroad, with the globalized economy Canada seems to always be brought along on the all too familiar rocky ride. And our core strengths – mining, oil and gas, take a beating like every other sector of the economy. This has spilled over into the legal market, where resource work, although it is still strong, isn’t looking as good as it was in the past few years.

But one area that has been going strong and has no sign of slowing down is real estate investment trusts (REITs). Granted, REIT work doesn’t make up the lion’s share of the work for business law firms in Canada, but it is growing in a way that indicates it has a lot of future potential.

For Christopher Murray, a corporate lawyer at Osler, Hoskin & Harcourt LLP, REITs have offset the slowdown in resource work:

There hasn’t been a lot of large scale mining IPOs recently. There haven’t been a lot of [large scale mining acquisitions] recently. So REITs have very nicely filled that space.

And REITs have been evolving in much the same way that the mining sector did for Canada a few years back. Funders, many of whom are international, are using Canada’s stock markets to finance projects that often involve offshore properties.

Dundee International REIT’s IPO last year is an example of this, where it filed a prospectus for an offering to help fund the purchase of commercial properties in Germany for around $1 billion. Oslers represented Dundee International REIT in that transaction.

Lawrence Wilder of Cassels Brock & Blackwell LLP, who represented LSF REIT Holdings S.à.r.l., an affiliate of Lone Star Real Estate Fund (U.S.) L.P, in the sale of the German properties to Dundee, echoes Murray’s enthusiasm for the REIT market:

As a legal professional, the number of financings for real estate investment trusts…has increased dramatically. I think that is just because of favourable market conditions, low interest rates, attractive real estate prices and the market. All the building blocks for a very healthy REIT marketplace are in place right now.

In addition to IPOs like the Dundee REIT, there has been an upsurge in mergers, particularly in the last few months, according to both Murray and Wilder. And REITs are often investing abroad in markets such as Latin America, Europe and the US.

Wilder points out that the large Canadian institutional pension funds have been investing in overseas real estate for some time, particularly in Latin America, and REITs allow retail investors to get in on the game.

So is real estate the new mining? Not quite yet, but as Wilder puts it:

[Canada’s] brand in resources is unequaled in the world. I wouldn’t say that the REITs are there yet but we are certainly going in the right direction. I don’t think there is a champion right now and I think Canada is certainly moving into that spot.

Tim Wilbur

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