Low Interest Rates:
A Real REIT Headache

For publicly traded apartment real-estate investment trusts, low interest rates have been a pain in more ways than one.

Low rates hurt apartment REITs by persuading potential renters to become home buyers. They also hinder growth because lower borrowing costs helped private apartment firms outbid the public firms for properties. Public REITs usually try not to take on too much debt in order to get better ratings from credit-rating agencies.

A private New York-based apartment firm, Related Capital Co., emerged as the nation's largest owner of apartments in 2002, displacing Apartment Investment & Management Co., a Denver-based REIT that was 2001's top owner, according to the latest annual ranking of the top 50 apartment firms by the National Multi Housing Council. The rankings are to be released next week.

Related Capital's step up from second place in 2001 marks the first time in six years that a private firm topped the list. Related Capital posted the biggest yearly portfolio growth, 29,000 apartments, helping the firm to more than double its portfolio in under four years. By comparison, No. 2 Aimco, which performed exceptionally well for a public REIT last year, bought up about 4,300 apartments around Boston and 17,000 apartments from a Los Angeles firm.

Another hindrance for apartment REITs: Raising capital by issuing stock wasn't a viable option last year because their share prices were weak, says Craig Leupold, an analyst with research firm Green Street Advisors Inc., Newport Beach, Calif. "If you can't raise equity, it retards you from going out and being an aggressive acquirer," Mr. Leupold says.

Some public apartment REITs also have put the brakes on development programs, says Robert Stevenson, an analyst at Morgan Stanley in New York.

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