By Christopher M. Wright

Name: Tom Robinson Title: Managing director and co-head of real estate investment banking at Legg Mason Wood Walker. Age: 56 Experience: Prior to joining Legg Mason, Robinson was president and chief financial officer of Storage USA, Inc. Previously, he served as national director of REIT advisory services for the national account- ing firm of Coopers & Lybrand. Robinson was vice presi- dent and general counsel of NAREIT from 1981 to 1989. He formerly served as chair of NAREIT's Government Relations Committee. He is also currently on the board of two publicly traded REITs, CenterPoint Properties Trust and Tanger Factory Outlet Centers, Inc. (NYSE: SKT)

Few people within the real estate industry have as broad a perspective as Tom Robinson. Having held leadership roles at a private real estate company, a publicly traded REIT and at an accounting firm, served as general counsel for NAREIT and currently co-directing Legg Mason's real estate investment banking activities, Robinson has seen the inner-workings of the industry from every angle. Real Estate Portfolio recently asked Robinson to share his thoughts on the capital markets and the real estate industry as a whole.

Portfolio: You've been involved with real estate for 25 years and worn many hats in this industry—REIT officer and director, trade association counsel, tax policy visionary, IPO facilitator, and now, investment banker. How has this shaped your view of the industry?
Robinson: From both the inside and outside, I've seen REITs and strong private companies become better business managers and more sophisticated as operating companies. Investment decisions are now being driven by economics, not tax considerations like they were before tax shelters were cut back by the Tax Reform Act of 1986. We have an aging population that is placing increased emphasis on income yield in their portfolios. Real estate is in a better competitive position for attracting capital than ever before. So I see an extended period of low cap rates and high investor demand for real estate going forward.

As for the REIT industry, I think there are several business models that work, whether it's the regionally focused, more growth-oriented smaller REITs, the strong national players, or the medium-sized capital recyclers like CenterPoint Properties Trust (NYSE: CNT), where I am a director. REITs aren't growing for growth's sake and their managements are much more disciplined in managing their assets and their balance sheets. Publicly held REITs are ideally suited to deliver on investor expectations. I am very optimistic about real estate as an asset class and especially publicly traded REITs as an investment vehicle of choice.

Portfolio: You've been instrumental in helping to formulate REIT tax policy over your career. What do you view as your most important contribution in this area?
Robinson: As NAREIT general counsel, I was part of an effort to have REIT modernization legislation included in the Tax Reform Act of 1986. The act substantially eliminated the requirement that REITs manage properties through third parties. Prior to that legislation, REITs were passive asset accumulators and their stocks were viewed as bond equivalents. The passage of the act gave REITs the ability to be operating companies, which was critical to the success of the Kimco Realty Corporation (NYSE: KIM) IPO a few years later and to many others that followed.

Portfolio: REITs recapitalized the real estate industry in the early 1990s when private capital had fled. Today, there is no shortage of capital for real estate. How have you seen the role of REITs change?
Robinson: Aging baby boomers, retirement funds, and investors who got burned on growth stocks in recent years are definitely shifting away from capital appreciation to income yield in their own portfolios. I'm a big believer in real estate as an asset class and listed REITs are the best way to deliver liquidity and income yield in that class to investors. The yield characteristics of publicly traded real estate companies will be a dominant part of the investing landscape for the foreseeable future.

I'm a big believer in real estate as an asset class and listed REITs are the best way to deliver liquidity and income yield in that class to investors.

Portfolio: When you were at Coopers & Lybrand, you helped publish a couple of books: “REITs: A Vehicle for the 1990s” in 1989 and “REITs: The Future Is Now” in 1992. How have the predictions and analysis in those two books held up?
Robinson: We got some things right. In the short term, we could see that the widely held limited partnership was essentially obsolete as a vehicle to raise capital for real estate. The institutional private equity markets were in disarray, so the public market and REITs were the only viable way for real estate to access capital. We could see securitization coming in the real estate industry for both debt and equity. We were right in believing that the debt markets would have to change. At the time, freewheeling S&L's were underregulated and just giving away money. We could see that lenders would require borrowers to have real equity invested in the business and that would make REITs more competitive in the real estate markets.

Most importantly for the long term, I think we were right in seeing that REITs would lead the way in the “corporatization” of real estate. By that I mean that REITs were becoming disciplined, structured operating companies, running their business as an enterprise, as opposed to just financing one property and moving on to the next. We're seeing this approach today with good real estate companies, both public and private.

Portfolio: “REITs: The Future is Now” talked about a “profitability crisis” brought on by overconstruction and declining rents. Asset prices had to be reduced to get returns up and attract capital. Is the real estate industry doomed to repeat a boom-bust cycle or have lessons been learned that would prevent it?
Robinson: We have oversupply right now, but real estate prices keep climbing. That's certainly different this time around. Also, real estate companies are not overleveraged like before, so they have survived in an economic downturn like we've been experiencing. Real estate remains attractive to investors because it offers a safe yield even in an oversupply environment, and income is so important.

One of the big questions today is whether cap rates will go up when interest rates rise. I am in the camp that believes we are seeing a secular change in real estate valuation. Because of better lending practices, more public market involvement with both debt and equity markets and better information flows, real estate is less volatile now and the cycles are less dramatic. The industry can deal with a soft economy better than in the past. Everybody in the real estate business is just smarter now, and I think investors see less risk in the asset class.

There is an opposing view, of course—that real estate's appeal will decline, interest rates will go up, real estate owners won't be able to pay their debt, more real estate will become available, and prices will go down. But you have an aging population and retirement portfolios that are being managed for income. Real estate is at the top of the list for income investments, so I think that demand for real estate will stay up.