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Rexroad anticipates returns of 10% to 12% over the next year, and more than 12% in 2005 and beyond. Deutsche Bank analyst Louis Taylor recently upgraded three names in the sector - AMB Property Corp. (AMB), Duke Realty Corp. (DRE) and CenterPoint Properties Trust (CNT) - to buy from hold, and reiterated his buy rating on ProLogis (PLD) on his belief that the stocks will rally. Industrial real estate investment trusts delivered total returns of 29% in 2000, 7% in 2001, and 17% in 2002, according to the National Association of Real Estate Investment Trusts. So far in 2003, they've advanced another 20.7%, which is a healthier clip than the S&P 500's 17.8% return. However, it's short of Nasdaq's 42.7% return and the equity REIT market's 23% return. Jim Sullivan, a buyside analyst with Green Street Advisors of Newport Beach, Calif., is more bearish. "We've seen no evidence in the second quarter that the demand side is improving whatsoever," he said. Although the ISM index has been positive, "we're yet to see it translate into demand for industrial real estate." Sullivan sees Catellus, which is in the process of converting to a REIT from a C-Corp., as the name offering the most upside potential. He also likes Prologis (PLD), with its international reach, and CenterPoint, with its savvy development plan and management team. However, he noted that ProLogis and CenterPoint are trading at hefty premiums to their net asset values, or NAVs, of 30% and 40% respectively. Michael Winer, portfolio manager at Third Avenue Funds, is in it for the long haul. He sees Catellus and ProLogis outperforming other industrial REITs over the next three to five years.
Add the 7.3% dividend yield that REIT stocks were paying at the beginning of this year, and investors who bought before the rally are up an average of 22%, which before taxes is even better than the 19% return produced by a resurgent S&P 500. But is it time to set down the champagne glasses and think about selling? There are three yard-sticks that say you should. (1) At the moment, the average REIT stock trades for a 15% premium to the net per-share value of its underlying assets, more than three times the average 4.3% premium that has existed since 1993. (2) REIT P/E ratios are 15.4, compared with 17.5 for the S&P 500. Again, that's unusual--on average, REIT P/E ratios were half that of the S&P 500 during the past decade. (3) Finally, compare the 6.5% earnings yield of REITs to the 6.9% yield of Baa-rated bonds. Eighty percent of the time, it's REITs that offer the better yield, not the other way around. Lehman Brothers analyst David Shulman studies net asset value data closely, and he readily agrees that REITs are trading at too-high premiums to their NAVs. What's more, he's convinced that the premium may be even higher than it appears. That's because the property markets themselves have been inflated by cash from buyers desperate for income. "In office, for example, we're looking at vacancy rates rising to 15% around the country - that's high - and no real opportunity for rental income growth until 2007," says Shulman. But office property prices have, for the most part, held up. If interest rates rise, office-building prices will fall - wrecking the foundation that REITs are built on. "It's one thing to buy them at 120% premiums to NAV when you think property values are going to rise," says Shulman. "It's another to do it when property prices are in real danger of coming down." Green Street's sell-rated REITs include apartment owner Summit Properties, Mills and Weingarten. Shulman has "underweight" ratings on 16 stocks, including apartment owners Gables and Post Properties and office owners Arden and Reckson Associates. On the other hand, if you simply must buy REITs now, both firms have REITs they consider to be relatively good values. Shulman recommends shopping mall owners General Growth Properties, Rouse and Simon Properties. Green Street's buy-rated stocks include apartment owner Equity Residential and senior housing owner Health Care Properties.
The flap dates to a Trizec earnings conference call in August 2002, when Mr. Litt startled listeners with criticism of Mr. Munk's approach to corporate governance. While owning 6.5% of common shares, Mr. Munk has power to appoint all seven of the company's directors. Monk formed Trizec's predecessor in 1987. But after selling a giant string of malls for a healthy $2.5 billion in 1998, Mr. Munk's company, then known as TrizecHahn, took some missteps. Among them: a bid to develop malls in such unlikely locales as Greece, Hungary and Slovakia; ill-fated bets on trendy telecom-data centers, a market that collapsed from oversupply; an investment in Chicago's Sears Tower that didn't pan out; and overly grandiose mall developments. The $600 million Hollywood & Highlands in Los Angeles, resulted in a write-down of $217 million - more than most malls cost - while another, Las Vegas's costly Desert Passage, is today known to industry wags as "Deserted Passage." In 2002, Trizec posted more in write-offs - $665 million - than the combined total of the other 33 real-estate companies tracked by Green Street Advisors. In all, the company's write-offs between 2000 and 2002 totaled $1.18 billion. "The magnitude of the losses is stunning," says Jim Sullivan, a Green Street analyst. "Most real-estate owners were printing money during this period." In May 2002, the company converted into a U.S. real-estate investment trust and dropped "Hahn" from its name. Now based in Chicago, Trizec is the second-largest office company in the U.S. During the conference call of Aug. 1, 2002, Mr. Litt said "I believe the fundamental problem is that Mr. Munk continues to control the board of this company." Those these quoted words are mild, Litt's words in total were described by Green Street's Mr. Sullivan as a "tirade". The analyst's research note cut his rating on Trizec stock to "sell" from "outperform," and reduced his price target to $8 a share, from $18. A Citigroup spokeswoman says, "Our analyst acted in the best interest of our investing clients, correctly called the six-month selloff in Trizec shares and precisely predicted the downside target. The claims made by Trizec are completely without merit." The shares traded as low as $8.20 this March. They've rebounded since, and were trading around $12.24 at midafternoon Friday.
The picture's not much rosier for metro Atlanta's industrial market. More than 63.4 million square feet, or 14.5%, of the 437.8 million square feet of industrial office space is begging for tenants, Cushman & Wakefield's second-quarter office and industrial market report said. That's the highest ever. Where commercial office tenants may have been paying as much as $27 per square foot on a long-term lease, they can renegotiate that down to $23 now or lower, even with as much as two years left on a lease, some brokers say. Apartment vacancy in metro Atlanta stood at 10 percent in July, according to Dale Henson Associates, an Atlanta-based consulting firm to multifamily housing developers. The vacancy at the end of 2002 was 10.9%. Landlords fared a little worse nationally. Apartment vacancies in the second quarter climbed to 11.3%, compared with 10.5% at the end of 2002, according to the National Apartment Association. At the end of 1999, the effective rent of what landlords received - rents paid minus the value of concessions and vacancies - was $707 per month, or $52 less than the official asking price, known as the street rent, Henson said. The figures are based on a weighted average of apartment properties that are three stories or lower. Compare that to the rental picture in mid-2003, when landlords' street rent was $810 a month but the effective rent was actually $623. The difference: $187. Boston Office Update Thomas Grillo, Boston Globe 9-20 There is a record 21.3 million square feet of vacant office space in Greater Boston. At 21.6%, the vacancy rate in the Interstate 495-Massachusetts Turnpike area has been the hardest hit, according to a Spaulding & Slye Colliers second-quarter survey. Boston's vacancy rate is 10.1%, while Cambridge's is 14.2%, the survey found. The suburban office market vacancy rate has swollen to 17.8% in Q2, up from 13.5% during Q2-02. Houston Office Update Ralph Bivins, Houston Chronicle 9-21 Crescent Real Estate Equities, the Fort Worth-based realty firm that owns vast quantities of Houston properties, is back on the acquisition trail and is one of the companies considering the 50-story Enron building at 1400 Smith downtown. When he visited Houston earlier this year, John Goff, chief executive officer of Crescent, said Houston appears to be a good place to buy office buildings. Office space is relatively cheap compared with some parts of the country. And with American companies trying to cut costs, finding cheaper office space will be a top priority, Goff theorized. Companies may be flocking here to get bargain-priced offices. Crescent also is focusing on investments in Dallas, Denver, Florida and Southern California. Manhattan Office Market Ryan Chittum, WSJ 9-24 The Manhattan office market is buzzing again with big lease deals two years after the terrorist attacks of Sept. 11 sent the real-estate market there spinning. In the first half of this year, there were 21 lease deals for spaces larger than 100,000 square feet, up from just 11 a year earlier, according to a survey by CoStar Group, a commercial real-estate research firm. And the activity has been continuing. The huge amount of sublease space available had been strangling the market. But it's down to 30% of available space from a high of almost 50%. "My sense is that leasing activity will increase over the remainder of the year, and pricing will solidify," says John Powers, president of the New York region for CB Richard Ellis, a commercial real-estate services provider.
Suburban office rental rates were $18.30 per square foot at the end of the second quarter, down from $19.74 per square foot for the same period last year. Many real estate professionals blame the dropping rents on the abundance of sublease space. Depending on who you ask, there is between 10 million and 15 million square feet available. Concessions also continue to increase: "We are in a market where tenants can easily obtain six to 12 months free rent" said Tracy Fults of Cushman & Wakefield. Industrial Market The marketwide industrial vacancy rate was 14.6% at the end of Q2 - the highest vacancy level since the late 1980s - compared to 12.3% for the same period last year, according to Cushman & Wakefield. The Metroplex had negative net absorption of 2.9 million square feet after the first two quarters, versus 70,000 square feet of positive absorption through the first half of 2002. At the end of Q2, there was almost 4 million square feet of industrial space under construction. For the same period last year, there was only 1.6 million square feet of space under construction.
Some regional malls have been demolished or shuttered, while some of them have been redeveloped into other retail centers. In fact, according to ICSC's Research Quarterly report, there will be more mall closings than new developments to replace them. Last year, there were 36 mall closures and/or redevelopments. According to ICSC, "the reasons behind the closures/redevelopments include competition from a newer center that opened nearby, loss of several anchors and changing demographics of the trade area. " More Mall Stats Lorraine Mirabella, Baltimore Sun 9-14 Nearly 20% of all regional malls in the nation are dying "greyfield malls," with sales of $150 per square foot or less, or approaching "greyfield" status, according to PricewaterhouseCoopers and the Congress for the New Urbanism. A study in February 2001 by those organizations classified 140 regional malls as dead and 200 to 250 others as dying, and argued that retail is no longer the best use for many of these sites. A decade ago, 46% of women surveyed by Britt Beemer, a Charleston, S.C.-based retailing consultant, shopped as a "pick-me-up" when they were feeling low; today just 21% do. Now people shop more for what they need - and go to discounters to get it.
It's nothing like the buying binge the industry saw in the 1990s, but officers of public real estate funds and industry analysts expect them to continue acquiring and selling assets. "Good REIT managers do not just sit on the sidelines - they actively cull out fully valued assets and create value through targeted acquisitions, limited development or redevelopment, and improved leasing," said David Fick, managing director of real estate securities research with Legg Mason Wood Walker. That's what Dallas-based REIT Prentiss Properties Trust has been doing during the last year. "Our theory is we should be selling 10% of our properties every year and upgrading with newer properties," said Prentiss president Tom August. Mr. August says his company and most REITs anticipate that most of their income will come from refining the portfolios they have, not through huge volumes of acquisitions. That's in part because commercial real estate is appreciating at a lower rate. "In the old days, you'd buy something on a Tuesday and on Wednesday it was worth more money without you having to do anything," Mr. August said. "Today you have to work at it a lot harder." To get more buying clout and acquire a larger number of properties, Crescent Real Estate has been forming joint ventures with institutional investors, said Crescent chief executive John Goff. "Our template today is more in line with co-investing alongside other investors," he said. Some of Crescent's partners include GE Pension Trust, JP Morgan Fleming Asset Management, Aetna and Morgan Stanley. Wall Street must like the idea. Public real estate company securities prices are up about 40% since 2000. "The markets tend to look favorably on capital recycling, especially when it results in a portfolio upgrade," said Mr. Fick of Legg Mason Wood Walker. "In the case of most office REITs today, they are not in a position to issue new equity and are therefore constrained to providing some earnings growth through balance sheet management and reshuffling their existing portfolios, perhaps with some asset substitution." Stock analysts are also paying closer attention to exactly what the REITs are buying when deciding if their expansions are warranted. "It obviously depends on the deal," said David Shulman of Lehman Brothers. "Acquisitions per se aren't necessarily good or bad."
Increasingly, both institutional and private equity investors perceive commercial real estate as a safe haven. Lend Lease estimates that annualized returns for real estate over the next four to six years will be in the 7% to 8% range. While that may not sound spectacular by historical standards in real estate, battle-weary investors who have been burned in the stock market have come to value stability. "As the dynamics change, with an improving economy, higher interest rates and better stock market performance, the real estate investment market will experience a transition. However, the last two years have reignited long-term interest in real estate as a hard asset," says Harvey Green, president and CEO of Marcus & Millichap Real Estate Investment Brokerage Co. Job creation remains the lifeblood of commercial real estate. If corporate layoffs continue and interest rates rise sharply as they did in July, the stresses on landlords could become more acute, particularly when it comes time to refinance. Against that economic backdrop, National Real Estate Investor magazine and Marcus & Millichap Real Estate Investment Brokerage Co. conducted an exclusive real estate investment survey between April and June 2003. Approximately two-thirds of the 561 respondents to the joint survey are private investors. The field of respondents is seasoned. On average, respondents have invested in real estate for 20 years and report an average of $21 million in commercial real estate holdings. Among the study's major findings: The demand for property remains high with 70% of respondents planning to increase their investment in commercial real estate over the next 12 months. Nearly one-third of respondents plan to expand into new property types. Investors appear to be the most optimistic about recovery in the apartment sector. Thirty-eight percent of respondents expect apartments to experience the biggest effective rent growth in 2004. Conversely, only 9% expect regional malls to experience the biggest effective rent growth in that time period. Only 6% of respondents believe the economy will be weaker 12 months from now, while 37% believe it will be stronger. MultiFamily Although the majority of respondents, 56%, reported a decrease in effective rents for Apartments over the past 12 months, 45% anticipate a rise in effective rents over the next year. Similarly, 52% of respondents anticipate apartment values to rise in 2004. The largest percentage see now as the time to hold apartment properties (38%), but another 30% believe now is the time to sell. Retail In the top 40 U.S. retail markets, the average vacancy rate for retail is at 10.5% currently, up from 8.5% two years ago, according to Marcus & Millichap Research. In addition, rents rose a slight 0.6% to average $16.89 per sq. ft. in the second quarter. When it comes to predicting effective rents, investors remain more bullish on grocery/drug-anchored centers than any other retail property type. Some 28% of respondents indicate that effective rents for grocery/drug-anchored retail will increase over the next year, compared with 20% for regional malls. Office Office vacancy rate reached 16.8% at the end of the second quarter of 2003 and is projected to rise to 17% by year-end, according to Marcus & Millichap Research. As a direct result of low interest rates, owners of office properties have been able to refinance and continue to operate properties with high vacancies and negative cash flow. So there have been few 'forced turnovers' of office properties that might have provided investors with bargain prices. It appears that most owners are trying to hold on to office properties. Fifty-six percent of respondents see now as the time to hold office/R&D space, 51% see now as the time to hold suburban office and 43% see now as the time to hold downtown office properties. Industrial Although the industrial sector is typically one of the first sectors to benefit from an economic recovery because it's more dependent on inventories than job growth, few respondents have yet to see improvement materialize. When asked to assess the investment market for warehouse space compared with 12 months ago, 80% of respondents indicated conditions were the same or weaker. National statistics offer some insight as to why investors aren't gung-ho on the industrial sector. The overall industrial vacancy rate at year-end is expected to reach 11.8%, up from 11.2% at the end of 2002, reports Reis. At the same time, average rents are likely to remain relatively flat, dropping slightly from the $4.57 per sq. ft. at year-end 2002 to a projected $4.55 at the end of 2003. The majority of respondents - 59% for manufacturing and 53% for warehouse - expect effective rents to remain the same over the next 12 months. Sixty-one percent of respondents see now as the time to hold manufacturing properties, while 56% plan to hold warehouse properties. Buyers appear to be in the minority with just 15% of respondents indicating they plan to acquire manufacturing properties in the next year, and 26% likely to buy warehouse space.
Furthermore, with real estate fundamentals still off, operating margins are weakening, especially for office, lodging and health care, according to Arlene Isaacs-Lowe, senior vice president at Moody's Investors Service. Plus, interest and fixed-charge coverages have been deteriorating, and dividend payout ratios are stretched. As for the good news, though, only a few REITs have actually decreased dividends, although Isaacs-Lowe pointed to some temptation to use poor assets and leverage to fund them and Fick said the average current REIT dividend yield was measuring 6.3% on Aug. 13, down from a high of 8.1% on July 24, 2002. In addition, Isaacs-Lowe has started to see an increase in dividends as FFO per share has declined. And there are a number of other dividend-related positives for REITs, according to Fick. Legg Mason research has found that those that increase their dividends tend to outperform the market. And he believes the new dividend tax law will prove to maintain REITs' recent edge over other stocks. While most non-REITs with yields above 3% tend to be highly volatile, he explained, they will now have higher after-tax returns. But REIT yields will continue to come in above those of other dividend payers, at an average of 6.3%, and 4.1% after 35% taxes. In addition, REITs already have a partial income tax exclusion that has not been discussed, he pointed out. Furthermore, he believes investors will find they cannot estimate the benefits of investing in stocks that qualify for the dividend tax savings when they buy, decreasingthe lure. Overall, Isaacs-Lowe noted, REITs are maintaining financial discipline, liquidity is good and they continue to be favored by investors. That tops out a historical record that is proving the sector has long-term strength. According to numbers presented by NAREIT senior director Chuck DiRocco, nine REITs now have equity market capitalization rates over $4 billion, with the average at $1.1 billion in June, versus $110.1 million in 1992, the first full year of the Modern REIT Era. And REITs' annualized total returns outweighed both the S&P 500 and bonds - though not small U.S. stocks - over the past 30 years, while yields on June 30 outweighed those of corporate bonds, 10-year Treasuries, the S&P 500 and 30-day T-bills. Plus, the average annual income return rose 8.4 percent between 1982 and 2002, with just six years of negative price returns, and dividend growth has consistently outpaced inflation. And while fallout is expected as REITs strive to meet corporate governance requirements--with some smaller companies choosing to de-REIT or sell - that activity has thus far not occurred, while a turnaround is now anticipated for real estate fundamentals. All in all, not a bad outlook.
Consider the amount of capital the company is spending on its assets, was one piece of advice. If it isn't investing over a number of years, there may be a reason. Furthermore, if a REIT has just 50 percent or less leverage, it should be making money, noted Ron Weiss, portfolio manager for the Spirit of America Real Estate Fund. And Joseph Smith, portfolio manager for ING Clarion, recommended looking at insider selling, management changes and strategic changes. None of those may be occurring for a bad reason, he noted, but the investor should try to understand why they're happening in order to spot signs of trouble. It is also important for the investor to know where the REIT owns property and be aware of events occurring in those markets and how they may affect the properties, he added.
The unemployment rate rose because there was an even bigger increase in the number of candidates looking for work. And what that suggests is that most of the pain is concentrated among those with newly minted degrees. If there must be white-collar joblessness, there are worse ways to have it. And let's put the pain in perspective. Against a 3.7% jobless rate among the one-third of the labor force that is white collar, the other two-thirds boasts a 7.6% rate of joblessness. If knowledge work is fleeing, then you wouldn't know it from the increase in knowledge employment cited above. Related article: Blaim India - David Bodamer, CPN
Wells' five-year-old investment pool is in the vanguard of a new trend, "private REITs," whose shares aren't traded on exchanges. Although Wells files publicly with the Securities & Exchange Commission, you must buy and redeem the stock directly from the REIT. This private-REIT bunch is madly peddling shares. W.P. Carey, the grandfather of these creatures, right now is offering $1.8 billion in stock. Are these good investments? Not really. Private REITs keep their share prices frozen, meaning there's no possibility of appreciation. Private REITs are pretty liberal with the fees siphoned off for insiders. And there is scant prospect of a hostile tender offer to rescue the shareholders of a mismanaged private REIT. As the largest private real estate trust, $3.3 billion (assets) Wells REIT does things on a grand scale. The company owns 18 million square feet of prime office buildings that are 98% occupied, mostly by corporations with investment-grade credit ratings. Wells REIT pays an annualized 7% dividend yield, in line with those of public office REITs. Free of long-term debt, Leo Wells says that he has plenty of margin for error. He boasts, "If 50% of my properties go bankrupt, I can still give you a 3% yield." Like many financial products, this one needs heavy marketing to succeed. "Private REIT shares are sold, not bought," says Jon A. Fosheim, cofounder of real estate research firm Green Street Advisors. Mirroring its peers, Wells REIT depends on an army of salesfolk - 39 affiliated brokers and 3,000 independent reps. Wells' REIT's big pitch is that no investor has lost money with the trust. True, if you ignore opportunity cost. The share price has been fixed at $10 since 1998. Since then the four most widely held publicly traded office REITs have averaged 5.4% yearly in price gains. Add in their dividends and the return was 11.5%, outpacing Wells' 7% dividend-only return. If you want to redeem your Wells shares, you may have to stand in line. The REIT has committed to cash out (at the full $10) up to 3% of its shares every year. So far redemption orders have been modest and last year's $21 million of cash-outs came to only 1.75% of the stock then outstanding. But if there were a rush for the exits--say, after a big cut in the dividend - the redemptions would be first come, first served, and it might take a long, long time to unwind a position. The safety of Wells' dividend has deteriorated alarmingly. Last year's 73-cent dividend was not covered by FFO, so Wells had to borrow $8 million short term to cover it. For 2003's first period (the second one isn't out yet) the FFO was 19 cents a share, up a penny from the year earlier and barely enough to cover the 17.5-cent quarterly dividend Wells has retreated to. Investors have seen the Wells FFO dip from 83 cents per share in 2000 to 70 cents today. Most big office REITs pay out only 70% to 80% of their FFO. There are three more problems with Wells, management fees, property purchase fees, and commissions. To ensure that tenants maintain property, Wells says, inspectors need to visit them quarterly. The REIT buys that service from a company owned by Leo Wells, called Wells Management, to which it pays a fee of 4.5% of the rent roll. Real estate pros find that way high: For a triple net lease, 1.5% is more like it. Then there's an entity called Wells Real Estate Funds, which gets a 2.5% cut on the purchase price for advice on which properties to buy. Then come lush fees on all the new capital. Some $400 million - 16% of the equity capital Wells is raising this year. By Green Street Advisors' reckoning, that's four times what publicly traded REITs incur when they make follow-on offerings. A third of the boodle goes to Wells' own sales organization, Wells Investment Securities, or its advisory firm, Wells Real Estate Funds. Leo Wells owns 100% of these affiliated firms, but he has just a tiny $15,000 stake in his supposedly wonderful REIT.
There are now more than 65,000 investors in the Wells REIT, with the average stake around $25,000 per investor. The minimum initial investment in the Wells REIT is $1,000. Wells charges a 16% front-end fee. So for every dollar invested in the REIT, only 84 cents go into the investment. Under the Wells REIT's articles of incorporation, the REIT must sell its assets and return the net proceeds to shareholders if shares have not been listed on a national securities exchange or over-the-counter market by Jan. 30, 2008. These so-called 'list or liquidate' provisions are common to unlisted REITs. While W.P. Carey has taken 10 public programs from start to liquidation and Inland has liquidated a total of four, Wells and CNL have yet to liquidate any of their public programs. In W.P Carey's case, the firm took its first nine REITs public as a limited liability corporation five years ago. Investors generated a total yield of nearly 12% on this conversion. Wells, like other unlisted REITs, offers limited redemption rights to shareholders seeking liquidity before the stated 'list or liquidate' deadline. Steinwedell says Wells only offers 'hardship' redemption opportunities to shareholders who need to liquidate because of an emergency. Redemption rights commonly require that shares be owned for a minimum period of time, with the redemption price based upon a pre-set formula. Inland Retail REIT shareholders are allowed to sell shares back to the company at $9.50 per share this year, $9.75 per share next year and $10 per share from 2005 though 2007. One share of Inland Retail REIT costs $10. Wells Real Estate Funds grew out of the mid-1980s limited partnership era, and the firm still sponsors several real estate limited partnerships (RELPs). One REIT watcher views the flood of capital into the unlisted sector as eerily reminiscent of the limited partnership days of the 1980s. Unlike the many RELPs that collapsed, Wells was able to keep its partnerships alive through the 1990s, largely due to its low-leverage focus. RELPs have a decidedly checkered past. During the 1980s, RELPs were created to deliver huge up-front tax write-offs - but many were hardly solid real estate investments. Then, in 1986, Congress put an end to the generous tax benefits. Investors stopped flooding RELPs with capital, and property prices subsequently collapsed. A handful of RELP operators survived through the next decade and emerged as REITs. Wells, which had no RELP failures back then, says it won't be the one to give unlisted REITs a bad name - if that happens. In the meantime, Wells will continue to do what it does best: raise money - and shop.
The Wells REIT, which pays predominantly cash for its acquisitions, has one of the lowest levels of leverage in the industry. At present, the Wells REIT's average leverage level is less than 10% when you factor in limited assumed debt and short-term line of credit borrowings. Other REITs, both traded and nontraded, have much more significant levels of leverage. Johnson is replying to criticism that his fund uses leverage to maintain its yield. This lack of of leverage would appeal to investors wanting added safety. Quick Facts, Stats & Opinions The U.S. office market showed signs of stabilizing, with more tenants taking space than leaving it and the amount of sublease space declining. Still, rents fell 2.6%, and the vacancy rate rose 0.5 percentage point to 16.5%, the latter primarily due to new construction accroding to Colliers International, a Boston real-estate services firm. (Ray Smith, WSJ 9-10)
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