Banks Growing More Eager to Lend to Real Estate Trusts
Goldblatt, Jennifer, American Banker
As margins in the high-yield universe continue to shrink, bankers are trying to expand their relationships with Real Estate Investment Trusts.
"Every conceivable lending technique will find its way into servicing the REIT industry," said Daniel Alpert, managing director and principal at Westwood Capital, a New York investment bank that specializes in real estate.
"Over the last 18 months, some of the newer REITS are gaining maturity," said Michael Corbett, a director in real estate syndications at BancBoston Securities Inc. "With their size, market capitalization, and conservative balance sheets, they've demonstrated their ability to borrow on an unsecured basis."
The eagerness of banks to serve REITs marks a significant change in the way these investment vehicles are viewed. Banks are regaining their appetite for real estate in general, and they say the trusts are structured differently than they were in the 1970s, when REIT failures created big problems for banks. Indeed, REITs have become a big competitor for investor dollars on Wall Street. (See article on page 25.)
The current competition for REIT relationships also reflects the heated contest between banks and investment banks to provide one-stop shopping to an ever-widening array of industries.
Kevin Comer, a senior real estate securities analyst at Bankers Trust New York Corp., noted that REIT loans are becoming more like traditional commercial and industrial loans.
And he argued the REITs are just as attractive a client base for banks as any other industry. "Over the last six years, as the REIT industry has matured, lenders and investors are recognizing that this REIT industry is more solid than in prior generations," he said.
In the early 1990s, REITs were financed through structured and secured offerings, based on the size of their assets.
As REITs have achieved investment-grade status in the eyes of the rating agencies, they have sought broader access to the capital markets, and more flexible borrowing arrangements.
In 1996, REITs raised $5 billion in unsecured debt, and issued a record 131 secondary equity offerings, according to the National Association of Real Estate Investment Trusts.