The feverish pace of REIT deals appears to have hit some resistance.

Credit concerns have shaken confidence in commercial real estate lending, threatening the private equity strategy of flipping properties to fund large leveraged buyouts.

Add to that lender wariness coupled with rating agency warnings, and some experts say the surge in REIT buyouts may be at its peak.

Blackstone’s $23 billion acquisition of Equity Office Properties in February was the largest REIT deal ever and one of the largest leveraged buyouts ever. After the deal was announced, Blackstone sold off a bunch of properties to pay for the EOP purchase–prompting a quick wave of REIT deals. Blackstone has been among the most aggressive buyers in the last few years of office and hotel properties.

But the frothy debt and credit markets that helped fund EOP’s LBO and the many REIT deals that came before and after it seems to be pulling back. From the Reuters story:

A feverish appetite for CMBS (commercial mortgage backed securities), which grew over 20 percent to top $200 billion in U.S. issuances last year, has given real estate investors unprecedented access to cheap debt — pushing up both levels of leverage and prices paid per square foot.
 
But concern over lax lending practices, as expressed by rating agencies, has dampened enthusiasm for the paper.
 
“When lenders get competitive they start chipping away at loan quality to win business,” said Jim Duca, managing director at Moody’s Investors Service, which warned on CMBS in April.
 
Duca said a worrying trend for CMBS issuers was a focus on cash flow that could potentially be earned from a property, instead of what it is earning now.
 
“Often it’s a believable story,” said Duca. “But the preponderance of stories banking on future cash flows has increased a lot.”