GlobeSt.com: Interest rates are rising which is a problem for REITs as the market usually sees that as a signal to abandon them and other income-producing stocks for greener pastures. Won't REITs have their own problems accessing capital as their stock prices go down?

Barash: Yes, they will have challenges with rising rates but then so will all the other capital providers. REITs will still be better situated than private equity to provide funding because of their lower cost of capital. Also, stock prices will drop but it is a question of degree and for how long.

GlobeSt.com: So what would be a typical internal rate of return for REITs for this type of investment?

Kessler: That is hard to say — it is all over place depending on what basis they get in at and where the market is overall.

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WASHINGTON, DC–REIT joint ventures have been steadily rising for the last two years. In 2015, according to Real Capital Analytics, the dollar volume of such transactions rose by 50% compared to 2014. When the numbers are crunched for 2016, there is likely to be a similar increase given the ripe conditions for these partnerships.

But 2017 may well be the year when REIT JVs become one of the main go-to sources of capital for developers. GlobeSt.com sat down with David Kessler, national director of the Commercial Real Estate Industry Practice at CohnReznick, and Howard Barash, a principal at the CohnReznick Advisory Group, to talk about why.

GlobeSt.com: Why JVs at all for REITs? Why not just buy or build on their own?

Kessler: Because that is one of the best ways for them to get access to core deals at the lowest basis. And I think developers are going to struggle with other sources to fill their capital needs this year. That is not to say capital will dry up for developers, but I do believe that the demand will be greater than the availability for many companies.

GlobeSt.com: Construction finance by banks has become more expensive because of Basel but what about private equity? Isn't that still a competitive source for development?

Kessler: I agree private equity is the only other source of viable development finance but I think REITs now have certain advantages. Private equity funds are pausing a little on development activity, becoming a little more conservative and a lot more selective about the deals. Also the deals themselves are larger and more complicated with a lot of mixed use included, which is better handled by REITs. Also REITs are in the deal in for the long term, unlike a typical traditional private equity fund structure.

Barash: Also don't forget, the cost of capital is much higher in the private equity space than in the REIT space. The return hurdles for private equity capital are much higher.

GlobeSt.com: Interest rates are rising which is a problem for REITs as the market usually sees that as a signal to abandon them and other income-producing stocks for greener pastures. Won't REITs have their own problems accessing capital as their stock prices go down?

Barash: Yes, they will have challenges with rising rates but then so will all the other capital providers. REITs will still be better situated than private equity to provide funding because of their lower cost of capital. Also, stock prices will drop but it is a question of degree and for how long.

GlobeSt.com: So what would be a typical internal rate of return for REITs for this type of investment?

Kessler: That is hard to say — it is all over place depending on what basis they get in at and where the market is overall.