There are some pretty large real estate investment trusts, or REITs, in the stock market, but even the largest pale in comparison to the largest non-REIT stocks. And REITs are still a relatively new type of publicly traded stock.
This begs the question: Just how big could some of the leading REITs get? Would a $1 trillion REIT be impossible, or could it eventually happen? In this Oct. 22 Fool Live clip, three of our REIT experts -- Matt Frankel, CFP, Matt DiLallo, and Kevin Vandenboss -- answer a listener's question about how big REITs could potentially become and some of the most likely candidates to lead the way.
Matt Frankel: How big can you see REITs growing to? Could Realty Income (O 1.28%) get to $200 billion or American Tower (AMT +0.04%) at $1 trillion?
I will let you guys chime in too. But I would say that there are big opportunities for a lot of use, because REITs are relatively young asset class. REITs weren't around in any form before the 1960s and have only really caught on in the past couple of decades. So a lot of industries are still in the early stages of REIT consolidation.
Having said that, I don't see American Tower getting to a trillion dollars anytime soon. I am not sure that the worldwide cell tower market is a trillion dollars in size. But I know healthcare, for example, is over a trillion dollars in healthcare properties in the world. So how much do you think any one REIT could own in healthcare or industrials? I don't know either.
Matt DiLallo: Yeah. But the market, as you mentioned, is so huge. So the potential is there. It is interesting to see that American Tower is the biggest one, and I think, their market cap's only $100 billion, which that's big compared to others and in some other industries. But compared to the size of the commercial real estate market, trillions and trillions of dollars.
There is a lot of upside, maybe not specifically in American Tower, but offices. How many office buildings are owned by smaller players that could be consolidated? There's so many industries, like manufactured homes. The top players own such a small fraction of the overall market, and you go all through that. So yeah, there's a lot of upside for acquisitions for REITs.
Matt Frankel: With healthcare in particular, I know one statistic with healthcare and self-storage -- this is true -- that only about 15% of properties are owned by REITs. In healthcare, for instance, the majority of properties are owned by the hospitals and physicians that operate in them, as well as the smaller investors that own one or two properties. Hotels are a little bit more advanced. I want to say about 40% of REIT ownership. But there's a lot of room for reconsolidation in a lot of these industries. So I could see them getting a lot bigger.
Kevin Vandenboss: Especially when you say REITs being so young, and now, you are able to get public investors behind it in the growth. Yeah. Imagine how large some of these could get.
Matt Frankel: Yeah. I think it's fair to say the larger healthcare REITs will be a lot bigger in 10 years than they are now. The largest industrial REITs will be a lot bigger than they are now, whether they reach a trillion dollars, who knows? But I mean, hey, if Amazon (AMZN +1.63%) keeps growing like it is, then that's certainly a possibility.
