Interview ...
Kevin Deeble - VP Capl Mkts & Corp Finance
TriNet Corporate Realty Trust

TriNet is a REIT specializing in office and industrial properties net leased to corporations nationwide. Deeble responded to three e-mailed interview questions on September 16, 1999.

Pike: From a credit point of view, how does TriNet view the dot-com world?

Deeble: Because of our focus on single-tenant buildings, we at TriNet are very sensitive to tenant credit quality in making our investment and leasing decisions. We have evaluated a number of Internet companies as prospective tenants due to our substantial presence in technology centers such as Boston and Silicon Valley. Here's my take on the viability of these firms as tenants:

The vast majority of "dot-com" businesses will have dramatically negative cash flow for the foreseeable future. As a consequence, these firms will require additional capital raising in order to service all but the shortest lease obligations. For the last two years, raising additional capital (whether from VCs or the public markets) has been very easy. Going forward, however, I believe that equity capital providers are likely to become much more discriminating. Indeed, we have seen signs of this already in the recent poor performance of Internet stocks.

Pike: What kinds of companies do you feel are the safest?

Deeble: We look for companies that are most likely to continue attracting new money in a more difficult capital market environment. These are firms with very substantial and under-served markets, little competition, and meaningful barriers to entry. They are generally firms with radically new and compelling business models enabled by the Internet, as opposed to old business models merely migrating on-line.

Pike: How does this affect your lease negotiations?

Deeble: In leasing to these tenants, TriNet generally negotiates for a substantial letter of credit to mitigate our damages if the tenant fails. (Warrants are nice, too!) In addition, we want generic space in deep markets. We avoid tertiary locations and specialized or above-standard improvements whenever possible. In general, we can get comfortable with a weak credit if the real estate is good, and we can sometimes get comfortable with special-purpose real estate if the credit is good. But it's very hard to get comfortable with a weak credit AND special purpose real estate!

--Peter

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