Jones Lang chief sees peak in REIT buyouts

By Jonathan Keehner

NEW YORK (Reuters) - The wave of massive buyouts in real estate investment trusts may have peaked as a strategy of funding real estate takeovers by flipping properties soon after completing a deal comes under pressure, according to the head of Jones Lang LaSalle (JLL.N: Quote, Profile, Research, Stock Buzz).

Colin Dyer, chief executive of the Chicago-based real estate services company, told the Reuters Real Estate Summit in New York that acquisitions like Blackstone Group's (BX.N: Quote, Profile, Research, Stock Buzz) $23 billion purchase of Chicago-based Equity Office Properties (EOP) in February were unlikely to soon be repeated.

"(EOP) may be the last of the big deals that gets done in this current market," said Dyer. "We believe that is trending down in favor of smaller, more contained and more detail-evaluated transactions."

Within weeks of closing, Blackstone sold much of EOP's portfolio to the likes of Irvine Co and Maguire Properties (MPG.N: Quote, Profile, Research, Stock Buzz). Many of these sales fetched record prices, justifying the $40 billion including debt that Blackstone paid to win a bidding war with New York REIT Vornado Realty Trust VNO.N.

Critical to financing REIT buyouts like EOP has been a feverish appetite for securities like commercial mortgage backed securities, which grew over 20 percent to top $200 billion in U.S. issuances last year.

But criteria used to underwrite these offerings is becoming more stringent, said Dyer.

"There is a generally more cautious level of underwriting by debt institutions into the real estate markets which is the same thing that you are seeing in the private equity markets in general," said Dyer.

Underwriting wariness come as rating agencies have expressed concern over lax real estate lending practices and rising benchmark interest rates threaten to slow the broader leveraged buyout boom -- which accounts over a third of all U.S. takeovers so far this year.  Continued...