Issuance of high-grade (investment-grade) REIT debt totaled $8.2 billion through the end of June, according to NAREIT. Writing in his 2003 Review and 2004 Outlook in January, Dan Sullivan, managing director with Wachovia Securities, had predicted high-grade issuance of $6.5 billion for the entire year.

"Most of the firms that were expected to hit the market in 2004 chose to issue early in the year to take advantage of low rates and tight spreads," Sullivan says. "As a result of the low 'all-in' coupons on new issuance, firms tended to raise more than initially planned, causing higher than expected total issuance."

One firm, CarrAmerica Realty Corporation (NYSE: CRE), sold $225 million in five-year notes in March. The offering had a 3.625 percent coupon and was priced to yield 3.699 percent.

"The bond market provides a lot of flexibility, pretty good execution and it has really worked well for us," relates Steve Walsh, CarrAmerica's senior vice president of capital markets. "REIT spreads have really outperformed over the past few years and it is a very attractive time to finance in this market."

The firm's debt is rated investment grade: Baa2 by Moody's Investors Service and BBB by Standard & Poor's. In the first quarter, Moody's revised its outlook for the firm from negative to stable. Generally, an issuer should be able to offer investors a lower coupon when the rating agencies upgrade a firm's debt or improve its outlook.

Arden Realty, Inc. (NYSE: ARI) has a senior unsecured debt rating from Moody's of Baa3, one notch below CarrAmerica. Arden's ratings "continue to be constrained by its exposure to secured debt," which measured approximately 18 percent of gross assets in third quarter 2003 (the most recent figures), according to the rating agency.

The secured debt Moody's points to largely consists of $175 million in commercial mortgage-backed securities due to mature in June. The firm has revealed intentions to refinance the CMBS with unsecured debt.

Rick Davis, the REIT's chief financial officer, says financing with secured debt is much more difficult than unsecured because time-consuming due diligence must be performed on the properties. Unsecured debt can be issued from a firm's shelf registration. Comparing unsecured debt to equity presents a different set of considerations entirely.

"Raising unsecured versus equity isn't necessarily related to the ease of execution," Davis says. "It's related more to the financial ratios we like to keep. For example, we've told the rating agencies that we would stay below 50 percent debt plus preferred as a percentage of gross asset value. When we're looking at refinancing, we look at that as one of the ratios that we want to stay below."

Sullivan expects to see a limited amount of new bonds coming to market in the second and third quarters, but is raising his estimate of 2004 new issuance to between $7.5 billion and $8.5 billion. The new supply will come as firms accelerate acquisitions and development, he explains.