Steven Marks, managing director with Fitch Ratings, joined REIT.com for a video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.
Fitch Ratings recently released a report comparing the current commercial real estate market cycle to 2007. Marks summarized the report’s findings.
“We looked at REIT bond spreads relative to corporate REIT bond spreads,” he said. “What we found was that 2006 to 2007 was when spreads were their tightest and kind of in mid-2013 was right when spreads were nearing similar-type levels. We went in to investigate whether or not the overall credit profile of REITs was the same, better or worse than in 2006 to 2007. The biggest takeaway from what we found was that there’s a marked comparison of improvement in credit quality now relative to 2006 to 2007.”
Marks discussed REITs and their efforts to reduce risk.
“We think the companies have done a good job of de-risking,” he said. “The credit probably was not at the top of mind of a lot of REIT management teams during the most recent commercial real estate cycle. Companies weren’t as focused on leverage. They were mitigating leverage. There was a lot of growth, and there and there was a lot of development exposure. Companies now think about credit a lot differently than they did a while ago.”
Marks also shared his opinion regarding the evolution of technology and its impact on REITs and commercial real estate from a ratings perspective.
“There’s not a direct impact, but there is an indirect implication,” he said. “What we’re finding is that technology is impacting a lot of what REITs do, really almost across every commercial real estate asset class. In the apartment sector, companies have fully embraced elements such as a revenue-maximization model, previously used in the lodging industry or in the airline industry. So multifamily has embraced technology. In the retail space, that’s where there’s a little bit more of a risk from technology, clearly with the advent of the internet and online shopping that has eaten into the demand for retail real estate.“