Office REITS Reposition for the Next Cycle – Lower Rents Coming?

smart-investment-in-commercial-real-estateIt has been interesting to watch office real estate investment trusts (REITS) position for the next cycle in the economy of real estate.  After all, they have to pay out dividends and also make bets that their assets will grow in value.  One interesting REIT (Cousins properties) just sold their iconic building, 191 Peachtree in Atlanta for $268 million, having purchased it in 2006 for $153 million.

Cousins made $115 million in ten years on this one asset that they leased up and then flipped.  That one deal can create some good leverage for Cousins to reposition debt or capital for their next opportunity.  It turns out, they are not the only ones who are positioning on the smart.  Boston Properties is restructuring debt netting $984 million through selling senior unsecured notes to pay off debt and invest in future properties.  Boston Properties has over 150 class A trophy assets in major cities. 

Another office REIT Vornado Realty Trust has extended its unsecured revolving credit facilities from June 2017 to February 2021 and reduced interest to LIBOR plus 100 basis points.  The direct result is saving interest while rates are down to reposition the company to take advantage of future opportunities.

Most every office or industrial REIT is repositioning for new opportunities that will be irresistible to corporate investors.  It sure looks like they see lower prices coming quickly.   The good news for our client is both office and industrial rents are headed for lower territory soon.  We are ready for a more tenant friendly environment!

Contributed by Shan Morris, Principal

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