While real estate investment trusts have found a wealth of liquidity in the investment grade market, other real estate companies have had no trouble funding themselves in the junk bond market.

This week BT Alex. Brown Inc. is leading a $200 million high-yield offering for LNR Corp., a Miami-based real estate investment and management company. Both Standard & Poor's and Duff & Phelps Credit Rating Co. rated the issue BB-minus.

Last week Goldman Sachs & Co. led a $200 million offering for Forest City Enterprises Inc., a Cleveland-based developer and owner of commercial real estate.

And Amresco Inc., a Dallas-based developer, has tapped the high-yield market twice this year to raise $330 million, from issues led by Morgan Stanley, Dean Witter & Co.

Market experts say that as conditions in the junk bond market remain strong and the commercial real estate market continues to ripen, there may be more real estate companies tapping the junk bond market.

"I think that it's a combination of the real estate cycle improving and getting close to the peak, and a low level of interest rates," said Stanislas Rouyer, an assistant vice president with Moody's Investors Service.

Meanwhile, REITs continue to raise money in the investment grade debt markets. According to the National Association of Real Estate Investment Trusts, REITs issued a record $10 billion worth of unsecured debt in 1997.

But non-REIT status provides real estate operators and developers with more flexibility to operate as highly leveraged entities. REITs typically pay out 95% of their earnings to shareholders, while other real estate operators are free to pay smaller dividends, leaving more cash flow available for their properties.

Some say that 1998 is going to be a benchmark year, as the real estate market moves from recovery into maturity. Some real estate operators may feel more pressure to grow to improve their stock price and feel compelled to alter their capital structures to allow for that growth.

"Real estate companies are at a crossroads in 1998," said Michael Errichetti, head of real estate debt capital markets at J.P. Morgan & Co. There are "those that are going to have the ability to grow and maintain their investment grade ratings, and those that may consider sacrificing that rating to maintain growth."

Paul Tartak, an analyst with Duff & Phelps, said the creation of capital markets for real estate has produced a level of scrutiny that was not there previously. But "the flip side is that REITs have raised money by promising a certain amount of growth, and with the real estate markets maturing, there will be less internal growth."

"Going forward, they will be relying more on external growth," Mr. Tartak added.

"Clearly the recovery is pretty much over, and we're much more into a mature phase of the market," he said. "The market has been very agreeable to all real estate companies. But the fact of the matter is, being profitable and doing well in an up market is one thing; being able to pull off these feats in a down market is another story."

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