Friday, May 19, 2006

Juiced Up Portfolio
I am reviewing a major non-traded REIT and have signed a confidentiality agreement and therefore can’t divulge confidential details. But the documents I am reviewing are all public filings so I can comment away. (Anyhow, this company won’t disclose any private details – since when have cap rates become proprietary - and the disclosure in the filings appears more to obfuscate than clarify.) The documents, to me so far, show an almost inappropriate quest for yield – construction and mezzanine loans, ground leases and partial ownership of buildings – with little regard for growth or an exit strategy. Hell, the risk section, in a rare moment of clarity, states that the ground leased properties offer no growth! This is combined with other properties that do not appear to have much more than 5% to 6% returns. If the yield on the REIT was 8%, maybe the investment strategy could be justified, but at 5.5% I am not sure. I will keep you posted on this deal.

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