For more than a year, apartment REITs have been tapping into the secured debt market from Freddie Mac and Fannie Mae. The reason: It was just too expensive for them to get unsecured debt after the credit crunch.

But as the spread between unsecured and secured debt has fallen to about 100 basis points, analysts have speculated that some REITs may consider doing unsecured offerings. Last week, Alexandria, Va.-based REIT AvalonBay Communities was the first to strike. Last Tuesday, it commenced a $500 million offering of medium-term unsecured notes. The notes are broken into two separate $250 million tranches—including 5.7 percent medium-term notes due in 2017 and an aggregate of $250 million principal amount of its 6.1 percent medium-term notes due in 2020. The notes, which are expected to be rated Baa1 by Moody's Investors Service and BBB+ by Standard & Poor's, will have interest paid semi-annually.

“To have a six-handle on some of that stuff was pretty encouraging,” says Al Campbell, excutive vice president and treasurer and incoming CFO for Mid-America Apartment Communities, a REIT based in Memphis, Tenn. “Unsecured debt has been very expensive up until recently."

It’s no surprise that AvalonBay would be the first REIT in the apartment to put out its unsecured notes. Before the credit crunch, the company was a regular user of unsecured debt. “The debt isn’t secured against a particular property, so it gives you a little more flexibility from the borrower’s end,” says John Christie, senior director of investor relations and research for AvalonBay. “It’s secured against the company rather than the particular asset. When the spreads from unsecured got into uncomfortable widths, we did more secured because the spreads over Treasury were cheaper.”

AvalonBay plans to use the proceeds from the offering to help pay down a $1 billion unsecured variable-rate revolving credit facility; to repurchase some its outstanding long-term debt securities; and for working capital, capital expenditures, and other general corporate purposes.

Other REITs have similar obligations. That’s why analysts expect to see more unsecured offerings in the coming weeks and months. “It’s not a surprise, given the tightening of the unsecured debt markets,” says Alexander Goldfarb, associate director of equity research of REITs for New York-based Sandler O'Neill + Partners. “We expect others to issue. Corporate unsecured debt has a size and cost advantage over mortgage debt in the current market.”

Still, not every REIT is standing in line to issue unsecured debt. Birmingham, Ala.-based Colonial Property Trust saw its rating dinged by Moody’s and Standard & Poor’s earlier this year and doesn’t see a reason to do unsecured offerings. “While Avalon was able to get very attractive rates, for a company like us that is not investment-grade-rated right now, it would be a lot more expensive,” says Jerry Brewer, executive vice president of finance at Colonial. “As I stand here right now, it doesn’t make sense for us. We want to get back to an investment-grade rating, but it will take some time.”