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Rethink REIT covenants

It’s time to establish uniform covenants for unsecured REIT debt, executives say. Most bond issuers use covenants — restrictions on a borrower’s operating and financing activities — that are based on cost and were established in the early 1990s. In the years since, shrinking cap rates and growing net operating income have made those obsolete, says Bruce Johnson, CFO of Regency Centers. “The issuers and the investors need to get together,” Johnson said. “It’s in our interest to have one standard set of covenants that we can live with. Unfortunately, what’s going on right now is we’re getting multiple sets of covenants that each company is negotiating separately. At the end of the day, we won’t have a way to measure relative spreads, relative values or anything else.”

U.S. built $14.5B in ’05

Construction spending on U.S. retail real estate projects reached a record level of $14.5 billion last year, according to data from ICSC and the U.S. Census Bureau. The McGraw Hill Construction Pipeline database recorded 2,513 construction starts, representing some 90.1 million square feet of shopping center space last year, up 6.6 percent from 2004 in starts and 2.1 percent in building area. The 2005 projects were the highest number of starts and the largest building-area volume since 2002. Meanwhile, the number of U.S. centers grew 1.8 percent to 48,695.

Brokers get TICs

SCI Real Estate Investments, a tenant-in-common sponsor, unveiled a new listing program at Spring Convention that allows real estate investment brokerages to earn commissions on both the co-ownership positions they sell in a property and the acquisitions and sales of the property as a whole. The firm says the program will encourage more brokers to become tenant-in-common specialists.

“We are going to pay out a substantial amount of commissions,” said Scott Derrick, chief acquisitions officer of the Los Angeles-based firm. SCI aims to double its existing portfolio of $1 billion worth of commercial properties this year. “TICs are becoming so popular,” said Marc Paul, the firm’s president, “that commercial brokers themselves are investing their own money when SDI comes to pitch for new investors.” In the three years since the IRS qualified TICs for 1031 exchanges, the industry has grown to $10 billion.