U.S. REITs may be takeover targets in next few years

By Ilaina Jonas

SAN DIEGO (Reuters) - U.S. commercial real estate investment trusts may be takeover targets possibly as early as next year, the head of the Australia's Macquarie Group Ltd's (MQG.AX) U.S. and European real estate investment arm said on Wednesday.

But until then, the unit, whose funds have about $8 billion in U.S. assets -- shopping centers, office buildings and even some bowling alleys -- has further investment on hold.

"We're focused not on growing at the moment, rather on battening down the hatches," Mark Baillie, head of Macquarie Real Estate Europe and North America, said while in San Diego at the National Association of Real Estate Investment Trusts annual convention.

Macquarie Real Estate raises capital in the Australian market, via Australian listed Property Trusts, for investment in U.S. real estate assets.

The company has joint-ventures with real estate investment trusts (REITs) Brandywine Realty Trust (BDN.N) Maguire Properties Inc (MPG.N), Developers Diversified Realty Corp (DDR.N), and Regency Centers Corp (REG.N).

The credit crisis has pummeled REIT sector shares, sending them down 70 percent since their peak in February 2007 and 58 percent since October 1.

Baillie said investors have factored in a fall in real estate values into REITS. But the value of real estate that is not owned by publicly traded companies, a much larger market, have yet to follow, and several experts expect a decline of 25 percent to 30 percent from their 2007 peaks.

Baillie expects that percentage drop to occur within the next three years and REITs will no longer trade at discounts to the value of their holdings. Macquarie and other deep-pocket investors then will likely look to become buyers, he said.

"I think in different segments of the markets, we'll become active probably in the listed markets sooner than we do in the physical markets again," he said. "We will see that 2009 will be a time to start dipping our toe into the water."

Macquarie's U.S. investments may take the form of takeovers of publicly traded company.

"We would only buy shares where we saw there was a strategic opportunity to privatize...to take it private and then restructure it such that we felt the value that we could get from restructuring it would be greater than the value we paid for it in the public market."

(Editing by Leslie Gevirtz)