Privatizations of real estate investment trusts has 60% to 70% leverage, but often more is being used. For example, Equity Office Properties’ $36 billion sale to Blackstone Group includes more than 90% leverage. And consultants say typical leverage for non-core real estate funds is between 70% and 90%..
The capital markets and regulators are watching the real estate markets, said Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern California, Los Angeles. As a result, lenders are becoming more sensitive in screening properties before making loans and are offering slightly less attractive terms, he said.
“We might see lower loan-to-value ratios and some fee and interest-rate changes,” Mr. Ross said.
Already there have been subtle changes, with some lenders recently making loans for 75% of the property’s value, rather than 80%, he explained. Mr. Ross added he’s heard of minor changes in the lower quality, unsecured levels of debt on properties.
But any changes in loan terms could increase the cost of deals and lead to lower returns, he said.