Wednesday, March 19, 2014
At a conference earlier this week I over heard a real estate sponsor claim with pride - and a strait face - that his REIT had no debt. He then added the caveat that he didn't count the REIT's $40 million line of credit as debt (I'm sure his bankers have the same impression). The sponsor also didn't include the 60%-plus debt on each of the REIT's properties. The sponsor can make this specious boast because the REIT owns the properties through what is known as special purpose entities (SPEs), stand-alone companies (usually limited liabilities companies) whose sole purpose is to own one asset. The catch is that the SPE's sole owner is the REIT. So the while the sponsor's pronouncement is technically correct, it is also complete BS.