CB Richard Ellis' Big Deal

I noted in a post last week that CB Richard Ellis Realty Trust is beginning the process of preparing for a liquidity event, and as the first step it is internalizing its external advisor*.   In the documents I have read, CB Richard Ellis is not seeking a big internalization pay day **.  CB Richard Ellis is not the first REIT where its advisor waived an internalization fee.  But CB Richard Ellis' lack of internalization fee is important because CB Richard Ellis is not currently offering a new REIT and does not have a new REIT in registration, so it did not have to weigh adverse marketing considerations into its decision.  It could have attempted to charged an internalization fee without a broker / dealer backlash***.  To paraphrase a cliche, CB Richard Ellis' manager could have taken the money and ran.  It chose to do the right thing for investors.  CB Richard Ellis' decision to waive its internalization fee is going to make it harder for other non-traded REITs to charge this fee.

*As a quick reminder, most non-traded REITs, including CB Richard Ellis, utilize a corporate structure where their manager is a separate but affiliated company.  When non-traded REITs seek a liquidity event, they typically become self-managed, which means they internalize their external manager.  Internalization is a euphemism for purchasing.  This internalization process is an opportunity for the non-traded REIT managers' big pay day, because the REITs buy their manager, usually with large amounts of REIT stock at a price mainly determined by the managers.

**The waiver of internalization fees has been a growing trend in recent years, the most prominent of which was American Realty Capital Trust (ARCT) waiver in mid-2010.  Yes, I know ARCT granted its principals large amounts of stock, but these grants were lower than what ARCT could have paid its advisor through a stock-based internalization.  And yes, I also know that other non-traded REITs waived internalization fees before ARCT - which is good - but ARCT is the first of the non-traded REITs that waived its internalization fee to list on an exchange.

*** Yes, I know that CB Richard Ellis was distributed by CNL, which is currently distributing other non-traded products.  But when I think of CB Richard Ellis Realty Trust, I don't associate it with CNL and its other products.  If CB Richard Ellis had taken an internalization fee I think the impact on other products being marketing by CNL would have been minimal, just like I think any goodwill in terms of additional CNL sales as a result of the waiver will be minimal. 

**** Sorry for all the ***s.