RE Debt Management More Critical Than Before: Survey
- Jul 01, 2010
Dees Stribling, Contributing Editor
Needham, Mass.–According to an online survey of real estate companies conducted by Resolve Technology in April 2010, debt management has become an even greater burden for the respondents, many of whom simultaneously feel that they don’t have the capabilities to handle those more daunting requirements.
The 49 respondents covered a wide range of real estate organizations. Over a third of the respondents come from investment management firms (36 percent), while private equity firms, REITs and pension funds with holdings across the spectrum of property types (including multifamily) collectively make up 28 percent of the respondents, and 18 percent come from development firms.
Companies of all sizes are represented in the respondent pool. In fact, the total breaks roughly in the thirds, with 37.8 percent of the companies having assets of less than $1 billion; 26.7 percent having assets of $1 billion to $5 billion; and 31.1 percent having assets greater than $10 billion. A meager 4.4 percent have assets from $6 billion to $10 billion.
Whatever the asset class or total, the respondents say that hands down, debt has become harder to handle since the beginning of the recession. “The majority of survey respondents (94 percent) indicate the requirements for debt management have greatly increased or somewhat increased over the past two years,” the report by the Needham, Mass.-based Resolve Technology says.
However, 62 percent and 67 percent of respondents, respectively, say that their current capabilities for projecting future debt-service coverage ratios and loan-to-value are either inadequate or need improvement. Over half of respondents (56 percent) view their ability to gain visibility into loan covenants as inadequate or needing improvement. Even simply projecting future debt-service payments is a challenge for 42 percent of the respondents.
What’s missing? When asked about the ability to be alerted if a loan covenant is violated or at risk of being violated, only 18 percent and 29 percent of the respondents, respectively, noted that they have these capabilities. Beyond the ability of their systems to provide the required debt information, respondents also indicated shortcomings in their ability to access and share this information, both within and outside the organization. Almost two-thirds of respondents (63 percent) rate these capabilities as inadequate or in need of improvement.