If anyone had told us a year ago that Fitch would at least attempt to be a voice of reason, while Merrill Lynch, which has gotten destroyed on real estate, would be a CRE perma-bull, we would have punched them in the face. Alas, this seems to have become the case. While readers are all to aware of Zero Hedge's coverage of the Merrill REIT team's follies in "analysis land", a Fitch piece from last week has some surprisingly insightful commentary on REIT. In a report titled "U.S. Equity REIT Liquidity Update: Hold the Applause" the rating agency paints a much more detailed and credible picture than i) expected and ii) than the 20 brand new analysts at ML/BofA could come up with.

From the report:

Challenges remain, including:

• Tenuous financing available across the capital markets.

• Deteriorating performance in commercial real estate and the sizable overhang of debt maturities for equity REITs looming in 2011.

• Limited visibility regarding net operating income capitalization rates, which continues to stress commercial property values constraining the magnitude of institutional investor-secured debt lending volume.

Also included is a pretty extensive laundry list for all the companies out there who still have not used ML's magical stock underwriting services.

• Likely Reduced Revolving Credit Facility Commitments: Most REITs’ unsecured revolving credit facilities mature beyond Dec. 31, 2010. Within the tables on page 4?7, Fitch has reduced the borrowing capacity under revolving lines of credit by 33% for REITs that have revolving lines of credit that mature before Dec. 31, 2010 after taking into account extension options for illustrative purposes. This capacity reduction reflects a “what if” scenario for certain REITs as revolving credit facility maturities approach. While a limited number of REITs have either recently extended or increased the borrowing capacity under such revolving facilities, Fitch believes that many of these facilities will be reduced in size. For its rated universe, Fitch does not believe that many of these facilities will be converted from unsecured to secured given the strong lending relationships most of the seissuers have with their banking groups. That said, for weaker issuers across the equity REIT universe, the prevalence of secured credit facilities will likely increase given banks’ limited capital and concerns regarding borrower credit.

• Limited Unsecured Bond Issuances: Recent unsecured bond issuances do not constitute a panacea for REIT liquidity, as the unsecured bond market remains unattractive to most equity REITs.