Too many distressed mortgage REIT IPOs: experts

NEW YORK (Reuters) - The newest real estate investment trusts have not fared as well as the year's first few such IPOs, discouraging further entries into the business of raising money publicly to buy distressed mortgages.

Eight REITs, most created by big-name investment firms, have raised $2.4 billion this year in U.S.-listed initial public offerings to buy distressed commercial and residential mortgage-backed securities, among other "toxic assets."

The last three IPOs, however, were shrunk by at least half, and two others were shelved in the past week. And with growing skepticism over the possible success of a government program under which such REITs could take bad assets off banks' books, turnaround experts at this week's Reuters Restructuring Summit in New York said investors may continue to stay away.

"There was a lot of capital raised by the REITs in a fairly short time period, and there is no inexhaustible supply of demand for any given product," said billionaire investor Wilbur Ross.

REITs that came to market earlier fared well by not waiting.

Investment manager Invesco Ltd (IVZ.N), which has a partnership with Ross' firm, manages a REIT that in June raised $176 million to buy securities backed by distressed loans.

And one of the year's largest IPOs was by Starwood Property Trust Inc (STWD.N), which raised $951.5 million in August.

But enthusiasm has waned.

Last week, REITs managed by private equity firm Apollo APOLO.UL and Colony Financial Inc (CLNY.N) postponed their IPOs by a day and had to settle for half of expected proceeds.

Foursquare Capital Corp, a REIT managed by a unit of asset manager AllianceBernstein (AB.N) that would have bought toxic assets under a U.S. government program, postponed its IPO indefinitely last week. Another, Ladder Capital Realty Finance, did the same earlier this week.

Shares of the earlier mortgage REIT IPOs have paid off more handsomely than those of recent vintage.

Cypress Sharpridge Investments Inc (CYS.N) is up 26 percent since its June IPO and Invesco Mortgage Capital Inc (IVR.N) is up 9 percent.

But shares of two REITs that completed IPOs last week after cutting their share issues by half, Colony Financial Inc (CLNY.N) and Apollo Commercial Real Estate Finance Inc (ARI.N), have both fallen since their debuts.

Investors that bought shares of the earlier IPOs are hesitant to add similar stocks to their portfolios.

"A lot of these have been done so a lot of investors ... say I have enough exposure," said Michael Kramer, the head of restructuring for Perella Weinberg Partners.

One drawback of mortgage REIT IPOs is that it is not clear exactly what investors are buying when they invest.

"When you do an IPO of an existing business, it already has an income stream attached to it, but when you do an IPO of an REIT, it has to go out and buy the paper, and generally that takes a while to do," Ross said.

And many recent IPOs were created in part to buy toxic assets under the U.S. Treasury's Public-Private Investment Program, or PPIP.

On Wednesday, the U.S. Treasury launched the first two funds that will buy toxic assets. But some investors doubt whether PPIP will work.

"I am not sure PPIP is going to happen," said Lynn Tilton, chief executive of private equity firm Patriarch Partners. "They (investors) would be putting up money that may never get put to work."

(Editing by Gary Hill)