Decline in Real Estate Investment Trust Prices Expected to Continue

Written By: Lisa Matthys

With the commercial real estate market facing its own crisis, investors are wary of plunging into commercial property debt. Two real estate investment trusts (REIT), Apollo Commercial and Colony Financial, reduced the size of their initial public offerings by half. Apollo Commercial, a New York-based REIT set up by Leon Black’s Apollo Management LP, cut its stock sale from 20 million to 10 million and Colony Financial, a Los Angeles-based REIT set up by Thomas Barrack’s Colony Capital LLC, reduced its stock sales from 25 million to 12.5 million shares.

Many investors are hoping to capitalize on forecasts that banks will sell commercial and real estate loans at distressed prices. However, the initial public offerings have hit numerous obstacles from too many deals in the market to changing federal tax laws and investor skepticism.

Consequently, Colony Financial stocks began trading in the red on September 24th at $19.50. Analysts say that some anticipated funds were lost to rivals who were raising money for the same type of vulture fund. Similarly, Apollo Commercial shares traded at $19.20 at the start of the day but by midday fell $1.14 to $18.86. The market, according to some analysts, is becoming temporarily glutted.

The results of these two initial public offerings show that trying to invest in the distressed commercial real estate market may be more difficult than companies anticipate.

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