Banking Relationships and Financing Decisions of REITs

Banking relationships are key factors that influence the financing decisions of real estate investment trusts (REITs) which are mandated to hold highly specific assets. Using a comprehensive data set of loan facilities by REITs across different markets, this paper empirically tests the effect of REIT-bank relationships on credit costs and other non-price credit terms. We find that REITs with past banking relationships enjoy favorable loan terms that include lower loan rates, higher loan amount, and a less stringent collateral requirement. These favorable terms were kept by relationship banks during the global financial crisis from 2007 to 2009.