Crossing capital market boundaries
In looking at the US capital markets, one often comes across issues from Reits, real estate investment trusts. They are a feature peculiar to the US, and in the words of one banker, are "a funny little animal", although not so little any more.
The total capitalization of the Reit market is now some $240 billion, and Peter Baccile, head of real estate investment banking at Chase in New York, believes as much as half the commercial real estate in the US could be owned by Reits over the medium term. That would mean a total market capitalization of nearly $600 billion.
Market participants argue that rapid growth of the Reit market since 1993 has been a major contributing factor in the boom in US capital markets.
The Reit concept was created in the 1960s as a way to enable small investors to participate in large commercial real estate by buying equity in a portfolio of assets. The Reit has to pay out 95% of its income to investors, in return for which its dividend payments are tax-deductible.
Because Reits can retain virtually none of their earnings to expand their business, they are constantly in need of new capital, providing a steady and significant flow of all types of capital market instrument.