Real Estate Forum - January 2013

$300 million of assets in 2012, as providing additional flexibility.

W. P. Carey is also happy with the flexibility that it gets from owning a captive fund-management platform that it expects to continue to use to raise capital. “It is quite valuable strategically for us because, as we discovered during the financial crisis, parts of the public markets can dry up,” Bond notes. W. P. Carey, which can also access the public equity market, will selectively use non-recourse mortgage funding, taking care to ensure that no single deal that could get into trouble impacts the overall portfolio value too much.

As for Select Income REIT, the preferred financing sources are unsecured bank debt, equity financing and the institutional bond market. While the company prefers not to take on mortgage debt for property acquisitions, it will not rule out buying a property that has mortgage debt on it and assuming the loan.

Net-lease investors expect that all the major financing sources for other areas of commercial real estate—including banks, life insurance companies and CMBS financing—will be active in the net-lease niche in 2013. Select Income REIT’s Blackman

The biggest
competitor
for any
net lease
investor is
not other
net lease providers; it’s
the debt market.”

TREVOR BOND

W. P. Carey

expects that there will be “modest increases” in originations in the CMBS market, which is becoming more active.

And according to Volk, “If you go up the
credit chain, from ‘A’ to ‘AA’ or from ‘AA’
to ‘AAA’, you find that the spreads have
narrowed a lot. If people can provide capi-
tal—whether it is insurance companies or
banks or the CMBS market—in ways that
can get them higher yields without taking
commensurate risk for that, I think they will
be very attracted.”
And as spreads have narrowed in today’s
environment of historic low interest rates, it
certainly appears that net-lease investors
could face competition from low-cost
financing alternatives to sale-leaseback
arrangements.