US REIT banking relationships and syndicated loan pricing

Given bank debt is a critical financing source for real estate investment trusts (REITs), understanding how REIT banking relationships facilitate their borrowing costs becomes crucial. This research focuses on REIT syndicated loan facilities and investigates how banking relationships affect REIT loan pricing over the 1987-2015 period. We find that banking relationships on average lower syndicated loan spreads by at least 13.53 basis points. This reduction in spread for relationship loans versus non-relationship loans holds for the periods before the subprime crisis, during the crisis, and after the crisis. The result indicates that the financial crisis increases the borrowing cost for REITs with banking relationships by 59.36 basis points, while it increases by 95.92 basis points for REITs without banking relationships. We further examine the cost for public debt and the underpricing for season equity offerings (SEOs). During the non-crisis periods, banking relationships help reduce the borrowing cost of public debt by around 34 basis points. In addition, during the crisis period, the degree of SEO underpricing for REITs with prior banking relationships is significantly lowered (13.2%) compared to REITs without banking relationships.