REITs May Boom Into Destin Market

Just when the real estate market seems to be turning into a real buyers market in many parts of the nation, real estate stocks are setting new records. It may seem odd, but Real Estate Investment Trusts (REITs) are outperforming the rest of the stock market.

Many REITs have tried unsuccessfully to purchase large quantities of real estate in the Destin real estate market, but due to federal restrictions were stopped from making massive investments in the market. That may soon change.

For just the first three months of this year the Dow Jones Equity REIT index is up almost 13 percent compared to a 4 percent increase in the Standard and Poor’s 500-stock index. It’s the highest increase in the REIT index in six years amid speculation that many REIT buyers will attempt to enter the resort market, including the Destin resort real estate market in the next two years.

Real estate analysts representing REITs are betting on the long run that resort markets will continue to gain strength with the growing baby-boomer market, which is purchasing second homes and condos at all time levels.

REIT stocks are typically held in mutual funds by small investors, many of whom cannot afford to purchase a second home or condo on their own. The tax advantages for the corporations controlling the REITs are enormous. The sector does not pay any income tax on profits as long as they pay out 90% of their net income as dividends to investors.

Higher interest rates are of concern to real estate investors, but real estate analysts are quick to point out that by historical standards rates now in the 6.5% range for a fixed rate 30-year mortgage are still low.

Driving the REIT market are investors who don’t want the possible hassles and headaches of managing their own property and the inability of many to qualify for financing to purchase property on their own.

"The fundamentals are so good that interest rates can go up a bit and not hurt anything," said Rich Moore, a real estate analyst with RBC Capital Markets, one of the nation’s largest REITs.

Mergers and acquisitions of REITs are also contributing to the increase of their worth, which analysts agree may weaken their positions over short term business cycles. More than a dozen REITs have announced plans to exit the stock market and become private companies over the past two years. That way they would not be as tightly restricted to abide by federal regulations, which may give some real estate markets, including the Destin real estate market a shot in the arm to grow economically over time.