Virginia's Signet Taking Plunge into Real Estate Investment Trusts
Nielsen, David, American Banker
The real estate investment trust market has surged in recent years, and Signet Banking Corp. is the latest bank hoping to catch the wave.
"There has been a shift from private ownership of real estate to the capital markets. We positioned ourselves to continue to play a role in the evolution of the real estate industry," said Kevin Cashen, senior vice president of the company's lead bank in Virginia.
Richmond-based Signet, with $11.7 billion in assets, restructured its commercial real estate unit to focus on two emerging markets: financing for REITs and originating, packaging, and securitizing long-term loans.
REITs typically use lines of credit of $100 million to $200 million to acquire properties.
After most of the line is used, the REIT taps the equity market to pay down the line, according to Chris Lucas, vice president of research for the Washington-based National Association of Real Estate Investment Trusts Inc.
Frequently, the lines are established by an agent bank that forms a syndicate of participating institutions. Some of the major players in the REIT market are Bank of Boston Corp., First Chicago Corp., NationsBank, and Citicorp.
Eric Lawrence, vice president of Signet, says he isn't concerned that his primary competitors are much larger.
"It's not a big problem. The large banks are looking for other banks to participate in the credit lines. Often they'd rather let a smaller regional player participate than one of their head-to-head competitors," he said.
According to industry surveys, the number of REIT initial public offerings was 141 last year, up from 35 in 1991. The market capitalization of REITs had increased from $8.5 billion in 1990 to more than $43 billion by the end of last month.
Mr. Lucas said the REIT boom was primarily fueled by a need for alternate sources of market capital in the early 1990s. "You had a massive disequilibrium of real estate capital flows," he said. "There was an oversupply in the 1980s and a correction in the 1990s. This created a capital vacuum."
Private real estate development companies that had difficulty borrowing from traditional sources began accessing equity capital by transforming to public REITs. …