The big buzz during the NAREIT conference was the proposed $8.9-billion buyout of Trizec Corp. by The Blackstone Group and Brookfield Property Corp. Talk circulated about whether the price paid was too high. But it also signaled that private equity's love affair with REITs is far from over. As of late June, 17 entity-level REIT transactions have been announced or completed so far this year, worth $35.6 billion — about three-quarters of which have been privatizations. In all of 2005, there were $50 billion in entity-level transactions, about two-thirds of that coming as private buyouts. (Blackstone alone has participated in seven REIT buyouts.)

Part of what's driving the trend are the huge payouts to shareholders. Paul Ingrassia, managing director for Citigroup Global Markets Inc., estimates of the $85 billion in REIT deals closed in 2005 and 2006, $30 billion in cash was returned to shareholders. This, in part, has flowed back into the REIT sector as firms have raised $20 billion through new issues of stocks and bonds.

Ingrassia said more deals will come because there is so much money being raised by real estate opportunity funds and pension funds, which are on pace to raise $130 billion in 2006 — up from $90 billion in 2005 and $64 billion in 2004. “For some perspective, the entire enterprise value of the REIT universe is about $500 billion, meaning that if these funds leverage up to 80 percent, the entire REIT sector could be bought in 10 months,” said Ingrassia, during a panel discussion at the NAREIT show in New York.

At the same time, hedge funds — sitting on about $1.3 trillion in equity (up from $400 billion in 2000, according to Ingrassia) — are helping keep real estate hot.