estate investment trust to file for an initial public offering. The Westwood, Kan., unit said it plans to sell three million shares of common stock at $16 to $18 each, with Stifel Nicolaus & Co. leading the deal. Novastar, which caters to borrowers with spotty credit histories, is the third mortgage REIT in as many months to file with the Securities and Exchange Commission to go public. The time is ripe for lenders to form mortgage REITs, said Steven Hash, a Lehman Brothers analyst who covers the sector. Funding for the trust is becoming cheaper, Mr. Hash said, because spreads on the commercial mortgage-backed securities market have tightened dramatically, while bond prices have rallied. Because of the REIT structure, the units are exempt from many corporate taxes, which makes them substantially more profitable than any other mortgage lending structure. "It's the most profitable owner of a mortgage cash flow in the country," said another analyst who follows the sector. "REITs make more money doing mortgage lending than anyone else does." In exchange for the tax advantage, the trusts must pay dividends of at least 95% of income. Most of the trusts hold actual property or a combination of property and mortgages. Mortgage-backed REITS, with total market capital of $16.16 billion, make up only 10% of the market, according tothe National Association of Real Estate Investment Trusts. But the sector is growing. Hanover Capital Mortgage Holdings Inc., New York, filed its intention to go public with the SEC June 16. And IMH Commercial Holdings, a subsidiary of Imperial Credit Mortgage Holdings, Santa Ana Heights, Calif., is expected to come to market in the next month. REITs, including those that own property, have been performing well on Wall Street, delivering a total return of 35.75% in 1996, compared to the S&P's 22.96%, the trade association said. Bank stocks generally gained slightly in lackluster trading Thursday. Shares of First Empire State Corp., a Buffalo-based bank holding company, rose 1.48%, to $359.25. Last week the $13.4 billion-asset company reported a 15% increase in second-quarter earnings. First Chicago NBD Corp. also had a strong day. The Chicago superregional's stock closed at $75.87, a 4.84% gain for the day. BankBoston Corp. rose 3.19% for the day, to close at $84.93. And high loan-to-value lender FirstPlus Financial Group, Dallas, led the nonbank lenders, with a $2.25 jump, to $45.62.

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