With lenders reluctant, or flatly unwilling, to refinance maturing debt secured by commercial property, Britain's real estate firms are looking around for some new alternatives. Banks are making a few carefully selected refinancing deals, but they are getting very demanding about fees and interest rates.
Many European REITs carry debt comparable to U.S. REITs, or more, but aren't out raising new capital. One explanation might be that for some of the most highly leveraged REITs in Europe, the current debt doesn't mature for several years.
With 80% of bonds from commercial mortgage-backed securities still rated triple A, many are trading at discounts that bump their yields into the range of 14% to 16% because investors are indiscriminately dumping anything related to real estate. Bonds of commercial mortgage-backed securities are typically structured to protect investors from all but the most colossal defaults.
First Potomac Realty Trust has refinanced the rest of its debt maturing this year. The REIT refinanced a $72 million first mortgage loan secured by 14 properties in suburban Maryland. First Potomac next turns its refinancing attention to $14 million in mortgage debt coming due in 2009 and $38 million maturing in 2010.