REITs ON FINANCING
NYU Schack Institute?s 16th annual REIT symposium last week in NYC was like flipping through real estate's September issue ofVogue—chock full of top names and the latest industry trends. We joined more than 700 attendees to find out just where REIT capital is headed. For REIT financing, it's been a busy few months—there's been $35B in M&A activity, $20B in stock issuances, and $15B in debt issuances, says JPMorgan Securities managing directorMurray McCabe (finance strategies panel moderator, right, with Mack-Cali CEO Mitchell Hersh, Brookfield Office Properties CEORic Clark, and Citi Investment Research & Analysis managing director Michael Bilerman). Interest rates will have meaningful pressure, says Ric, and the economy is clearly getting stronger, but the government is less likely to get involved with the rates, leading to a 50 bps rise by year's end. ?Finance anything you can today,? he urges. And be prepared if factors like inflationary pressure andoverseas events influence the economy, leading to a ?second leg down,? says Mitchell.
Every time there's an event like Japan?s earthquake, cash trying to find a home comes in for the short-term, says UBS Investment Bank vice chair Jackson Hsieh (right, with Forest City Enterprises CEO Charles Ratner, ProLogis CEO Walt Rakowich, and Moody?s VP Merrie Frankel). Walt says that he doesn't see REITsleveraging up in the near future (ProLogis? acquisitions will be leveraging neutrally or positively). Debt capital is available for residential but not the LTVs you once saw, says Charles, who recently closed a deal at 80% LTV with a 5.5% interest rate through the FHA. For retail, you have to demonstrate significant pre-leasing, while office product requires a 70% to 80% lease-up. Overall, expect $5B to $7B in unsecured debt issuances this year, says Merrie. ?We're on target to issue as much as we did last year.?
Part of the world is still significantly in distress, says AllianceBernstein co-head of RE investments Jay Nydick; he kicked off the restructuring-focused panel (with Goldman Sachs managing director Mike Graziano, Acadia Realty Trust CEO Ken Bernstein, and Barclays Capital head of RE M&A Lisa Beeson). Some assets have even been starved of capital since ?07, he says; the lenders don't own assets because they're so difficult to foreclose, hence the lender-owner stalemate. But Ken says the distress market wasless active than he wanted. Now he sees more opportunity but one-degree removed from distress like an owner selling the retail portion of a condo building to redeploy the capital into the residential side.