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Over the past year, while the REIT market was in shambles, Philips Inter-national Realty Corp., a shopping center real estate investment trust, defied the odds and doubled in size, its portfolio swelling to 28 properties from 13. Philips accomplished this feat by leveraging a $100 million revolving line of credit into 15 acquisitions. The trick? All but two of the deals involved a joint venture.
Joint ventures have become one of the saviours of the troubled REIT industry, which needs money to acquire properties to grow. Joint ventures are turning out to be one unconventional
way to do so. Says Dale Reiss, at E&Y Kenneth Leventhal Real Estate Group, "The REIT uses some of its capital and they get a well- heeled partner to put its money in and it's a good deal for everyone."
True, joint ventures might be a way of stretching slim capital. But it's a tricky business since joint ventures are generally forms of off-balance-sheet financing. That means the joint venture is non- recourse financing for the REIT, which raises all sorts of red flags with the rating agencies and investors. "It's like being single but acting married," quips Thomas Flexner, head of the real estate, lodging and gaming group at Bear, Stearns & Cos.
Here's how it works. REITs will take a group of assets already on the...