Amid Continuing Market Decline, First Industrial Nabs $154M in Financing

Despite the ongoing weakening of industrial market fundamentals, banks are warming up to certain players like First Industrial Realty Trust Inc., which has just managed to get its hands on $154 million in the form of three loans secured by assets encompassing a total of 6.3 million square feet. Putting up for collateral 27 assets accounting for a total of 2.6 million square feet, First Industrial closed on a $77 million, 10-year loan at a 7.87 percent fixed rate with John Hancock Life Insurance Co. The Chicago-based REIT nabbed an additional $62.5 million, secured by 23 properties totaling 3.1 million square feet, from Massachusetts Mutual Life Insurance Co., which provided seven-year financing at a fixed rate of 7.75 percent via its investment subsidiary, Babson Capital Management L.L.C. Finally, American National Insurance Co. came through with a $14.7 million loan carrying a fixed rate of 7.5 percent, and secured by a 600,000-square-foot property. The loan-to-value ratio for all three financing deals was less than 65 percent. With its new financing in hand, First Industrial will use some of the proceeds for general corporate purposes, but the majority of the funds will go toward retiring all notes that are due to mature this month, leaving the REIT with under $25 million in balance sheet debt scheduled to reach maturity before March 2011. The industrial market is not exactly in recovery mode. According to a report by Grubb & Ellis, the national vacancy rate climbed to 9.5 percent in the first quarter from 8.8 percent in the last quarter of 2008, marking a four-and-a-half-year high, as well as the largest quarter-over-quarter increase in the 22-year history of the real estate services firm’s industrial survey. First quarter leasing activity volume plummeted 35 percent from the fourth quarter. On the upside, the construction pipeline, for all intents and purposes, is dry as a bone. The scarcity of new construction should help, however, the market isn’t expected to hit bottom until the second half of 2010. Sliding occupancy levels and sluggish leasing activity plague most real estate sectors. No market has hit bottom just yet. However, as fundamentals continue to drop, REIT stocks are on the upswing. The numbers tell the story. For example, the biggest percentage gainers on the New York Stock Exchange at the close of Thursday, June 4, included shopping mall REITs Glimcher Realty Trust, which ranked six with a 22.11 percentage change, while Macerich and CBL & Associates Properties Inc. took spots 13 and 15 with respective percentage changes of 18.67 percent and 18.27 percent. First Industrial topped the entire list with a 37.65 percent increase. Other REITs that have managed to score big-ticket financing deals in the last several weeks include office REIT HRPT Properties Trust, which entered into a $250 million secured credit facility in late April. In May, retail REIT Federal Realty Investment Trust closed a new $372 million unsecured term loan facility, and industrial REIT ProLogis, acting on behalf of ProLogis California Fund, wrapped up a $137.5 million secured loan with a major life insurance company.