Despite volatile conditions in the debt and equities markets and the fact that mortgage industry observers believe the country is at a peaking real estate cycle, the ratings outlook for real estate investment trusts (REITs) is likely to remain stable through 2001, Moody's Investors Service said last week.

At the UBS Warburg Global Real Estate Conference in Munich, Lesia Bates, a vice president and senior analyst at Moody's, said, "U.S. REITs' and REOCs' growing emphasis on customer service and use of technology to improve efficiencies coupled with their declining tolerance for risk should keep ratings stable for the next one-and-a-half to two years, barring a major economic shock."

As the capital markets outlook remains uncertain, the rating agency said that the REITs have begun to focus more on internal growth rather than debt-funded acquisitions. Additionally, Moody's is seeing renewed interest from both bond and equity investors toward the REIT sector, although it expects it will be some time before interest reaches pre-1998 levels.

According to Moody's, REITs' appetite for risk has decreased over the past year. Instead, they are favoring a long-term, holistic view toward managing market, liquidity and credit risk. The companies are likely to act conservatively in the future, treading cautiously toward new development, and focusing on development projects as sources of new space.

Bates described REITs' attitude towards development as "cautious" in the months ahead.

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