The Simon DeBartolo Group Inc., the largest publicly traded real estate investment trust in North America, has been a major consumer of bank financing.
As the highest-rated public re-gional mall company, Simon De-Bartolo has in the last eight months borrowed $700 million and has used a variety of investment and commercial banks for its financing needs.
Stephen Sterrett, treasurer of the Indianapolis-based REIT, spoke with American Banker about how he has been affected by the changes in the banking industry.
How has the real estate landscape changed, and how has that affected your ability to get financing?
STERRETT: Beginning in 1992, the majority of the large real estate operations began doing business as public companies. That's been a fundamental change, and it has some relevance to our relationship with the banking industry. The real estate companies are much more highly scrutinized today than they have historically been.
We have 12 analysts that follow and write about our stock. We are followed and rated by three rating agencies. We have a lot more coverage and understanding, and that gives banks a better feeling for the credit that they're underwriting.
Have banks overcome their fear of real estate?
STERRETT: We clearly have seen banks come back into the real estate lending market in a big way. What's unique about our story is that the Simon organization has always had a pretty long and positive relationship with a number of banks, even when the lending cycle was more difficult in the late 1980s and early 1990s.
We just priced a $250 million bond issue last week through a seven-bank consortium led by Merrill Lynch.
It's interesting to look at the lineup. We used traditional Wall Street firms: Merrill Lynch, Morgan Stanley Dean Witter, Lehman Brothers, and Salomon Brothers.
We also used J.P. Morgan, UBS Securities, and Chase Securities.
We had a mixture of traditional institutional investment banks, commercial banks that are now in the securities business, and J.P. Morgan, which has always worn both hats. There's a real mixture of services being provided by these very large financial institutions.
Banks say by offering one-stop shopping, they'll build market share versus the investment banks. Is that just talk?
STERRETT: The broader the product line, the more alternatives that the banks can bring to you, the better the ultimate services are that are delivered to the customer. It's the difference between the big guy and the niche player in any industry: The niche player may be very good and nimble at what they do, but if they're limited in what they're going to do and what they can sell you, eventually you are going to go somewhere else to get other services.
The activity going on in the banking industry right now is ultimately good for the consumer.
It means that an institution is better able to offer their bigger clients a broader range of services.
Many banks are offering to "buy" deals, or fully underwrite them themselves. Has this happened with any of your deals?
STERRETT: We have done selected transactions on a "full basis." The benefit you usually get is the cutting-edge thinking. If you get someone that comes up with a little better twist on a product that they can sell you on a proprietary basis, that's great for us, and we can borrow money at lower rates.
For example, in November 1996, we did a $100 million puttable asset- trust security through UBS Securities.
They brought us a structure that no one else on the Street had developed and allowed us to borrow the money 25 basis points cheaper than we could have otherwise.
Have you ever used one bank for multiple products?
STERRETT: There are situations where we wanted to borrow money on a construction-loan basis, and when the project was completed and the cash flow was stabilized, we'd use the same bank to securitize the loan and provide the lockbox for that project.
We are actually in the process of doing that in a couple of instances.
What do you think of banks that are integrating the real estate group into the investment banking group?
STERRETT: I think that any time the bank is more closely aligned with the investment banking services, and the real estate group has a closer association with the capital markets group, it raises the focus of the real estate lending business and the real estate clientele to the bank.
And ultimately, that's good.