Banks will probably increase lending to REITs in 2014, although access to capital is unlikely to match the “unsustainable” levels seen in the late 1990s and early 2000s, according to Lori Jensen, vice president for commercial real estate at U.S. Bank.
In a video interview during REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis, Jensen said that barring unforeseen events, “I don’t see anything on the horizon that is going to have a significant impact to slow down the activity” in the capital markets. She noted that if the federal government shuts down again in January and if there is no consensus on the debt ceiling in February, then “we’ll probably have a little pause.” Overall, though, Jensen predicted that “we’ll continue to move with positive momentum.”
“You’ll see nice, slow, steady growth,” she said.
Commenting on the type of commercial real estate borrowers who have been most active in 2013, Jensen noted that “there’s been a lot of activity in 2013 across the board. You have activity from the REITs, funds, private equity—even developers who have weathered the recession.”
On the REIT side, Jensen pointed out that most of the development activity has been in build-to-suit projects for the office sector, as well as health care facilities and student housing. The lodging and retail sectors have also seen a lot of acquisitions, according to Jensen.
“It’s really been significant compared to what I thought it would be,” said Jensen, noting that many have recast facilities and added term loans.
Turning to potential hot button issues in underwriting, Jensen cited a variety of structural issues that different banks focus on. These can include whether or not banks want to lend on a non-recourse basis, Jensen said, as well as cap rates.
“Cap rates have come down significantly,” she observed. That forces banks to consider “how low are you willing to go” in terms of the valuation side of REITs. Meanwhile, some of the REITs that are doing transactions in joint ventures have transfer language that could be a hot button issue for some banks, Jensen added.