"There is a wide and still growing price differential between the two," McDowell said during the New York City-based REIT's recent second quarter earnings call. He likewise said that cap rates have not risen nearly as much for net lease properties with in-place financing and high-quality tenants as they have for other assets.
Lexington Realty Trust, another New York City-based REIT focused on the single-tenant market, sold six properties for a combined $75.4 million and at a weighted average cap rate of 8% during the second quarter. President and CEP Will Eglin noted during LXP's recent Q2 earnings call that while the market for sales is "very challenging," having in-place assumable financing is "key."
And from a seller's perspective, the best cap rates are being achieved on properties with assumable, in-place financing, Eglin concurred. "I'm optimistic that we can complete some good sales over the balance of the year," he said. LXP's property dispositions and capital recycling are an important component of its ongoing efforts to reduce leverage and strengthen its balance sheet, he also noted.
CapLease could pursue some asset sales during the remainder of the year, McDowell said, as it continues its deleveraging efforts. But unlike some other REITs in recent months, the company is not likely to pursue a new equity raise in the public market, senior vice president and chief financial officer Shawn Seale said during the earnings call, noting that the new equity offerings are often dilutive to existing shareholders and that CapLease is able to strengthen its balance sheets without doing the same.
However, CapLease continues to look at other ways to raise additional capital, as it has for at least several quarters now. "As the broader economy improves, we are continuing to look aggressively and creatively at ways to attract capital for growth," McDowell said. "We firmly believe there are now, and will be for an extended period of time, very attractive long-term investment opportunities in our market segment."
Indeed, McDowell sounded relatively optimistic about future acquisition opportunities. "We feel a lot better now than we did even a couple of months ago. I guess we're closer to being back in business—and by that I mean expanding the portfolio again. We think there are going to be a lot of attractive opportunities but we think also that that window is going to be quite long," the CEO said. "We'd rather be a little late to the party but enjoy a nice long-term investment window, rather than trying to be the first guys through the door."
New York-based W.P. Carey & Co., meanwhile, is having success finding both debt and equity capital. On the equity side, fundraising for its non-traded REITs continues to increase; president and CEO Gordon DuGan reported during Carey's Q2 earnings call that while $71 million was raised during the first quarter, that number picked up to $100 million in the second quarter. Further, he reported another $41 million of equity raised during July, which he said was the best month since the company began fundraising for its latest REIT, CPA17.
On the debt side, during the year to date Carey has refinanced $74 million of debt (at lower average cap rates, to boot) and secured $73 million of new financing for new investments. The company also has commitments for another $120 million of debt financing, including a commitment with a foreign bank that DuGan said the company has not previously done business with in the US. "They're lending today because they do see opportunity."
DuGan also reported seeing regional banks that are in good financial condition and medium-sized insurance companies willing to lend, on a selective basis, lower LTVs and wider spreads. What lending activity he has seen has been encouraging, he said, but he added that it is still a very difficult financing market. "I'm not convinced it will get better any time soon," he said.
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