BT Securities Corp. has put together $220 million of financing for Public Storage Inc., using an off-balance-sheet structure that could become more popular as real estate investment trusts step up development activity.

The firm's investment banking group structured and advised in the financing, which will enable the Glendale, Calif., investment trust to develop self-storage warehouses nationwide.

Real estate investment trusts often opt for off-balance-sheet financing for development, to avoid the dilutive effects on-balance-sheet funding can have on earnings until a property's cash flow matures.

"Since they're all publicly traded, they're very cognizant of that," said Robert F. Cavanaugh, vice president at BT Securities, a unit of Bankers Trust New York Corp. "It's starting to make economic sense to develop, and now REITs are saying, 'How do I do it and not get penalized?'"

The deal unites Public Storage in a joint venture with a major state pension fund, whose identity has not been disclosed. The pension fund will contribute $154 million-almost 70% of total capital.

Public Storage will contribute $66 million and up to 25 properties in development. Once all the properties are fully developed and leased, Public Storage will have the exclusive option to buy out the pension fund's share.

The off-balance-sheet structure allows Public Storage to develop 50 to 60 new facilities without weakening its cash flow with start-up costs like construction and leasing. Public Storage, one of the five largest REITs in the country, owns 1,108 properties, 650 of which it developed.

Top-tier REITs such as Public Storage can extract better returns from properties they develop than from those they buy, Mr. Cavanaugh said. "They know how to build them, where to build them, and when to build them.

"They couldn't just go out and develop 50 properties on-balance-sheet," he said. "Their stock prices would suffer in the short term because of that, and it doesn't make sense for them to do it if their stock price is going to suffer."

Off-balance-sheet funding itself is not new to REITs, nor is a pension fund acting as a venture partner, said real estate lenders. But the linking of a major state pension fund and off-balance-sheet financing in this way is a novel combination, said several real estate professionals.

"It's almost a marriage made in heaven," said Jay A. Neveloff, director of the real estate practice group of Kramer, Levin, Naftalis & Frankel, a New York law firm. Banks and pension funds have lagged in producing innovative financing for real estate, and the new deal is a "good sign" that they are becoming more entrepreneurial, he said.

BT Securities is putting together six off-balance-sheet development funding deals for other REITS, all in excess of $100 million, said Mr. Cavanaugh.

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