And there is scant prospect of a hostile tender offer to rescue the shareholders of a mismanaged private REIT.
"Private REIT shares are sold, not bought, " says Jon A. Fosheim, cofounder of real estate research firm Green Street Advisors.
"Right now every bank on Wall Street is running going-private models on the REIT sector, " says Thomas Flexner, senior managing director at Bear, Stearns.
Among private equity firms, REIT buyouts are especially popular.
While both CCA and GEO have positioned themselves for conversion to REIT structures, neither company has received approval from the IRS despite their requests for a private letter ruling (PLR) regarding their REIT intentions.
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Since 1995 Steven Roth, his Vornado Realty Trust REIT, and a private partnership he controls have owned 56% of the stock.
Now, ostensibly, no price is too high, because rents will go up forever and private equity investors will buy up any REIT not nailed down.
Thus REIT share prices may still have room to fall, even if REIT shares represent a better relative investment opportunity than private real estate at the moment.
Private equity juggernaut Blackstone Group is vying with Vornado, another office REIT kingpin, to land the largest deal in history.
So far private equity firms have shown little interest in retail REITs, which trailed the overall REIT sector by five percentage points last year.
In addition, Silver Bay has entered into contribution and merger agreements through which it will acquire, concurrent with the closing of the offering, an initial portfolio of more than 3, 100 single-family residential properties through entities associated with Two Harbors Investment, a publicly traded REIT (TWO), and Provident Real Estate Advisors LLC, a private capital management firm, in exchange for equity interests in Silver Bay or its operating subsidiary, or cash.
By creating an entity called a taxable REIT subsidiary (TRS), the companies can separate the operational side of their private prison management from the real estate side of owning and generating income from correctional facilities.
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Everyone wants to get in on the REIT bonanza, as operating businesses from cellphone towers to timber companies, billboard firms and private prisons are converting to REITs.
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