Tuesday, July 10, 2012

Unlinked, Overstated And Leaving The Nest

I received an unlinked acknowledgement yesterday in an InvestmentNews article (yes, I thought about being snarky and not including a link back) on Wells REIT II's wise decision to waive its internalization fee.  The article mentioned that Wells manages $11 billion of real estate assets.  My guess it that the real estate assets of Piedmont Office Realty Trust were incorrectly included in this calculation.  Piedmont was the original Wells REIT, but it is now a separate company, with separate management and a separate location, so its assets need to be excluded from Wells' asset under management.  When Wells REIT II internalizes its management, it too will separate from Wells and take its $6.2 billion of assets with it.  

Losing significant assets is a major consideration for sponsors exploring liquidity options for their REITs.  I hypothesized last week that Cole doesn't want to see the $3.5 billion in Cole Credit Property Trust II assets leave the fold.  The master of keeping assets is WP Carey, which through multiple internal mergers still manages the assets raised through its investment funds.  Inland Real Estate Group has had three of its non-traded REITs go full cycle, two that are still operating (the third was an outright sale of the REIT).  The two still in existence, Inland Real Estate Corporation (IRC) and Retail Properties of America (RPAI), have separate management from Inland Real Estate Group, but operate out of the same office building.  I am not sure why Piedmont physically left Wells, or why Inland stayed.  Maybe it's like children becoming adults and deciding whether to move out or stay at home living with their parents. 

Sponsor assets under management is a serious issue, and one that will play into all non-traded REIT liquidation decisions.


Anonymous said...

Are you saying Bruce Kelly is not an expert on REITs? He would beg to differ.

Rational Realist said...

No, I did not say that at all. It's obvious from reading Bruce Kelly's articles that he knows REITs. I said Piedmont's assets need to be subtracted from Wells' total assets under management (AUM), because Piedmont is now separate from Wells, which has nothing to do with REITs.