SPECIAL REPORT: Lenders Look Favorably on REITs, but Warn of Inability to Rollover Loans if Credit Crisis Continues

By Keat Foong, Executive EditorNew York–Lenders are happy with doing business with REITs. That is the word from a panel of speakers at the National Association of Real Estate Investment Trusts’ (NAREIT) REIT Week held here at the Waldorf Astoria Hotel. Joseph Shaw, managing director, John Hancock Financial Services Inc., said that his company views REITs at least as favorably as non-public entities. He added that REITs operate in the 50 percent leverage level, which is in line with John Hancock’s tendency to provide financing at about up to 65 percent LTV. Leonard Cotton, vice chairman, Centerline Capital Group, said that his company is “very happy” to have REITs as its business partners. “We clearly have plenty of REITs [clients] and we are very happy with them,” he says. Bernd Knobloch, chairman of the board of managing directors and CEO, Eurohypo, says that it is very important to his company who is behind a project and who manages it. Panelists also suggested that commercial real estate cap rates may be currently still too low. “Cap rates have to come back out to norm,” says Cotton. Steven Marks, managing director at Fitch Ratings, predicts cap rates will increase by at least about 200 basis points regardless of asset type. The lenders also agreed that or the present, they will be willing to refinance the loans that are coming due. Cotton says his worry is if there is still a problem with a lack of capital in 18 months. At that time, companies’ ability to extend the loans will become a question.        Shaw advises that borrowers’ early discussions with their lender are essential. Borrowers are rolling over the loans by using floating rate or even recourse. He also warns that if the FDIC clamps down on lenders, then it will become even more difficult for borrowers to refinance.