Although REITs spent the last five months in a capital frenzy, raising some $20 billion in new debt and equity, the party is now over, according to a capital markets update released last week by real estate investment banking firm Cushman & Wakefield Sonnenblick Goldman based in New York.
“Even companies whose very survival was in question are now raising unsecured debt at attractive pricing,” stated the report by Cushman & Wakefield Sonnenblick Goldman analyst Chris Moyer. During the last nine months, REIT unsecured debt has tightened from an average of 1,200 basis points over Treasuries to 500 over Treasuries. The latest issuer was Brandywine, who raised $250 million at 7.6% earlier this week, according to the report.
Mezzanine and subordinate loan spreads have also comedown somewhat “with total pricing coming in from the high teens 60-90 days ago to the low- to mid-teens pricing today.” While the improvement is slight, it’s the first step to bringing loans with 60% or greater loan-to-value (LTV) ratios down to more sensible pricing.
According to the report, spreads for mezzanine loans with maximum LTVs of 75-85% are now Libor plus 1,500 to 2,000 basis points while moderately leveraged assets with LTVs of 60-75% are Libor plus 800 to 1,450.