tag:blogger.com,1999:blog-218468282024-03-05T10:34:29.082-08:00The Rational RealistOpinions and insights on alternative investments with a focus on real estate securities.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.comBlogger1216125tag:blogger.com,1999:blog-21846828.post-26907471182449611492019-10-29T13:24:00.000-07:002019-10-29T13:24:34.764-07:00No ShockThe <a href="https://www.wsj.com/articles/opportunity-zone-funds-are-off-to-a-slow-start-lagging-behind-heady-expectations-11571742002"><i>Wall Street Journal</i></a> reported last week that opportunity zone funds are falling short of capital raise expectations. The article notes that opportunity zone funds, on average, have raised less than 15% of their goals, which I am taking to mean their offering size. This shortfall comes as no shock, and it's not because of the neighborhoods where properties are located.<br />
<br />
An investment in opportunity zone separates when capital gains taxes are due from from when capital can be removed from the opportunity zone to maximize the benefit. Capital gains taxes must be paid in 2027, and this is a hard date no matter when the opportunity zone investment is made, but an investor must hold the investment for ten years to have all profits from the opportunity zone exempt from taxes. Investors, therefore, must have other means to pay their capital gains taxes in 2027 than from funds they invested in the opportunity zone.<br />
<br />
An opportunity zone fund investment triggers the capital gains tax event, where other investments can continue the capital gains deferral. An investor in an opportunity zone fund must pay capital gains taxes in 2027, but an real estate investment in a 1031 exchange, for example, can continue to defer taxes.<br />
<br />
As time goes by, I don't expect opportunity zone fund sales to increase because the time value of the deferral continues to decline. By the end of 2020, all step-ups (added incentives) for investing in opportunity zones end, which reduces the incentive to invest in opportunity zone funds, but capital gains taxes are still due in 2027.<br />
<br />
It seems to me that the opportunity zone provision was structured to benefit specific properties or one-time events, not as a sustained program to provide long-term benefits through continued opportunity zone investments. Since I began to write and edit this post last week, I have read two news articles that confirm my opinion that opportunity zones were designed for specific, already in progress projects. <a href="https://www.propublica.org/article/how-a-tax-break-to-help-the-poor-went-to-nba-owner-dan-gilbert">This story from <i>ProPublica</i></a> talks about Dan Gilbert in Cleveland, and the <a href="https://www.nytimes.com/2019/10/26/business/michael-milken-trump-opportunity-zones.html?action=click&module=Top%20Stories&pgtype=Homepage"><i>New York Times</i></a> details Michael Milken's influence to qualify for tax breaks for his properties, including this passage: <br />
<blockquote class="tr_bq">
<div class="css-exrw3m evys1bk0">
The former “junk bond king” has
investments in at least two major real estate projects inside federally
designated opportunity zones in Nevada, near Mr. Milken’s Lake Tahoe
vacation home, according to public records reviewed by The New York
Times.</div>
<div class="css-exrw3m evys1bk0">
<br /></div>
<div class="css-exrw3m evys1bk0">
One of those developments,
inside an industrial park, is a nearly 700-acre site in which Mr. Milken
is a major investor. Last year, after pressure from Mr. Milken’s
business partner and other landowners, the Treasury Department ignored
its own guidelines on how to select opportunity zones and made the area
eligible for the tax break, according to people involved in the
discussions and records reviewed by The Times.</div>
<div class="css-exrw3m evys1bk0">
<br /></div>
<div class="css-exrw3m evys1bk0">
The
unusual decision was made at the personal instruction of Mr. Mnuchin,
according to internal Treasury Department emails. It came shortly after
he had spent time with Mr. Milken at an event his institute hosted.</div>
</blockquote>
To make opportunity zone properties sustainable, the timing of capital gains payments needs to be
adjusted to match the timing of investment. The period when capital
gains are due needs to be tied to when the investment is made, such as a
fixed seven-year time frame, not just a random hard date (2027), which erodes the value of the deferral as the date approaches. A 10% or
15% step-up should be a permanent incentive. These changes would help encourage ongoing investment in opportunity zones by providing continued investment and incentive.<br />
<br />
Even with political influence and map making that would make a partisan gerrymanderer blush, without a change to make opportunity zone investments attractive over time, I suspect higher values of many properties ascribed by the tax law will languish due to lack of long-term demand inside the opportunity zones. Future opportunity zone articles are going to focus on the people who had projects in the works before the tax law changed, used their influence to get their properties included in an opportunity zone, then sold the projects a profit because of value of the tax benefit, and how future buyers experienced lost value due to lack of development tax incentives for surrounding properties.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com3tag:blogger.com,1999:blog-21846828.post-41508344245840660132019-10-22T09:30:00.000-07:002019-10-22T09:30:26.122-07:00Falling UpThe WeWork story opened a new chapter with SoftBank, WeWork's largest investor, agreeing to take it over. The deal values WeWork at $8 billion, much lower than the $47 billion value SoftBank figured WeWork was worth in January. WeWork's founder Adam Neumann will come out of this deal in fine fashion. According to the <a href="https://www.nytimes.com/2019/10/22/business/dealbook/wework-softbank.html"><i>New York Times' DealBook</i></a>:<br />
<blockquote class="tr_bq">
Yet Mr. Neumann will receive roughly $1.7 billion in consideration as
part of the SoftBank deal, according to the people with knowledge of the
offer. The Tokyo-based technology giant will buy roughly $1 billion
worth of WeWork shares from him, and give him about $500 million worth
of financing to repay a credit line from JPMorgan. Mr. Neumann also will
receive a $185 million consulting fee.</blockquote>
I want to go on record to state that I am open to this type of deal. I am willing to ruin a company and walk away with $1.7 billion in cash. Heck, I will settle for the $185 million consulting fee, and I will even promise to do some consulting work. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com1tag:blogger.com,1999:blog-21846828.post-48983347198238390712019-10-15T13:53:00.001-07:002019-10-15T13:53:58.656-07:00JusticeWow! <a href="https://www.investmentnews.com/article/20191015/FREE/191019953/former-woodbridge-group-ceo-gets-25-years-in-1-3-billion-fraud?utm_source=BreakingNews-20191015&utm_medium=email&utm_campaign=investmentnews&utm_visit=126420&itx[email]=72d2a91a50486c5fcd09413b63db910b625620bd9a4c2658be7f57dfb486bb96%40investmentnews"><i>InvestmentNews</i></a> (via Bloomberg) reports that Woodbridge Group of Companies' former CEO Robert Shapiro received the maximum sentence of 25 years for "running a $1.3 billion fraud." Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-44631548789940484492019-10-15T10:02:00.001-07:002019-10-15T10:02:43.415-07:00Can't Look AwayI am reading in the <i>Financial Times</i> this morning that WeWork is working on a $5 billion finance package that includes $2 billion of payment-in-kind debt. The PIK portion is expected to have a yield of 15%. (The PIK feature means that interest is paid in more bonds, not cash.) The <i>FT</i> further reports that WeWork's bonds that mature in 2025 are trading at $.79 on the dollar, down from over $.90 on the dollar late last week. Yikes. <br />
<br />
<div style="text-align: center;">
<iframe allowfullscreen="" class="giphy-embed" frameborder="0" height="356" src="https://giphy.com/embed/1hMhlrWWfXU77iYnBB" width="480"></iframe><a href="https://giphy.com/gifs/brid-1hMhlrWWfXU77iYnBB">via GIPHY</a><br />
</div>
Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-60038380533479051962019-10-10T18:09:00.001-07:002019-10-11T09:14:01.231-07:00ScaryThe <i>Financial Times</i> keeps good tabs on the leveraged loan market. Last summer the <i>FT</i> had an article (the article was published July 4) that stated that 80% of US loans are structured as "covenant-lite," compared to 20% in 2008 and 2009, which was during the Credit Crisis. Covenant-lite means loans have been stripped of features to protect lenders, like coverage requirements, reporting requirements, and restricted payment clauses. Restricted payment clauses prevent firms from borrowing money and then taking the money out of the business to pay big dividends. Private equity firms, which are big leveraged loan borrowers, have been behind the push for weaker covenants. <br />
<br />
The <a href="https://www.washingtonpost.com/business/economy/federal-government-has-dramatically-expanded-exposure-to-risky-mortgages/2019/10/02/d862ab40-ce79-11e9-87fa-8501a456c003_story.html"><i>Washington Post</i></a> had an article last week about Fannie Mae, Freddie Mac, and FHA's exposure to risky loans. The three government firms now guarantee $7 trillion of mortgages, 33% more than before the Credit Crisis. Many of these mortgages are to borrowers that have high income to mortgage payment ratios, which are deemed risky as a large portion of borrowers' income is going to mortgage payments. <br />
<br />
The stock markets always get the headlines but I am watching the loan market, and some of the articles I am reading scare me. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-77465828688692638862019-10-01T09:51:00.001-07:002019-10-01T09:51:12.119-07:00WeWorked OverI am late to the WeWork story, but in my speed education I find it fascinating. The non-traded alt space is not the only place were reality can get suspended. In August, WeWork was looking to go public at a $47 billion valuation, and some investment banks had its valuation close to $100 billion, and today, IPO shelved, WeWork is laying off employees and may have t<a href="https://www.businessinsider.com/weworks-nightmare-ipo">o face bankruptcy</a>. WeWork will inspire a book similiar to <i>Bad Blood's</i> telling of Theranos' rise and fall. <br />
<br />
WeWork's tale to me is simple, and does not involve Theranos' scientific shroud. WeWork took venture money along with heavy debt and entered into long-term leases with expensive improvements, then leased the office space on a short-term basis. The timing mismatch between WeWork's lease obligations and its revenue from short-term releases is enough to make me question the viability and sustainability of its business model. Like Theranos, WeWork had a charismatic founder/CEO who was as able to get continued financing and continued increased valuations for up-round financing. <br />
<br />
The real-world reality of the WeWork story is that it is the largest tenant in New York City and one of the largest in London. I bet there are some nervous major market landlords.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com1tag:blogger.com,1999:blog-21846828.post-68708011018666277832019-02-11T11:13:00.000-08:002019-02-11T11:13:01.603-08:00NorthStar Healthcare (No)IncomeNorthStar Healthcare Income needs to remove Income from its name. The REIT filed an 8-K late on Thursday (February 7th) announcing that it is suspending its distribution effective immediately. It's a move that can't be a shock to anyone who has looked at the REIT's financial statements. Here is the entirety of the statement:<br />
<br />
<blockquote class="tr_bq">
<div style="font-size: 10pt; line-height: 120%; text-align: justify;">
<span style="font-family: inherit; font-size: 10pt;">On
February 1, 2019, the board of directors (the “Board”) of NorthStar
Healthcare Income, Inc. (“NorthStar Healthcare”) determined to suspend
the monthly distribution payments to stockholders, effective
immediately.</span></div>
<div style="font-size: 10pt; line-height: 120%; text-align: justify;">
<span style="font-family: inherit; font-size: 10pt;"> </span></div>
<div style="font-size: 10pt; line-height: 120%; text-align: justify;">
<span style="font-family: inherit; font-size: 10pt;">In
determining to suspend monthly distribution payments to stockholders,
the Board performed a thorough analysis of NorthStar Healthcare’s
business, financial condition, liquidity sources and capital needs. The
Board believes it is prudent to preserve capital and protect NorthStar
Healthcare’s financial position by suspending distributions at this
time. NorthStar Healthcare expects that cash retained by the suspension
of cash distributions will allow NorthStar Healthcare to reinvest in its
assets through maintenance and strategic capital expenditures and
reduce leverage in order to drive long-term value for stockholders.</span></div>
<div style="font-size: 10pt; line-height: 120%; text-align: justify;">
<span style="font-family: inherit; font-size: 10pt;"><br /></span></div>
<div style="font-size: 10pt; line-height: 120%; text-align: justify;">
<span style="font-family: inherit; font-size: 10pt;">The
Board will continue to assess NorthStar Healthcare’s distribution
policy in light of its operating performance and capital needs. However,
there can be no assurance that distributions will be declared again in
any future periods or at any particular rate.</span></div>
</blockquote>
<div style="font-size: 10pt; line-height: 120%; text-align: left;">
<span style="font-family: inherit; font-size: 10pt;"><br /></span></div>
When the post-Crash history of non-traded alternative investments is written, NorthStar Healthcare Income's saga will span chapters and include the arrival of deal-happy James Flaherty, the subsequent participation (helping to finance) in joint ventures with parent NorthStar Realty Finance, including NorthStar's highly leveraged acquisition Griffin American Healthcare REIT II, and the irresistible lure of operating skilled nursing facilities. The original NorthStar executives and Flaherty are long gone but investors in NorthStar Healthcare are stuck with the detritus of their investment hubris.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com1tag:blogger.com,1999:blog-21846828.post-88131273579007559112019-02-05T15:02:00.000-08:002019-02-05T15:03:46.511-08:00Need A Google Finance TranslatorI think I am pretty good at reading and understanding financial filings, it's what I do. N-1 Liquidating Trust, the entity that holds the assets of the former NorthStar Real Estate Income Trust that were not part of the Colony Credit Real Estate merger and listing, made a <a href="https://www.sec.gov/Archives/edgar/data/1455650/000145565019000003/n1liquidatingtrust8-k02052.htm">filing today</a> that shouts, "Ha! You want complicated, hold my beer!" Bifurcation, junior participation, modification, multi-year extension... I read it all as obfuscation to cover capital elimination. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-10956973507879961302019-02-05T13:29:00.000-08:002019-02-05T13:29:06.307-08:00Eyebrows RaisedI wrote about the merger of three Medley/Sierra entities last summer, but it was one of several posts Blogger pulled citing a complaint. A sponsor (I suspect) complained about certain posts and included posts involving several sponsors in its complaint, and Blogger, per its policy, removed all the mentioned posts. Anyway, that was then and this is now. I read on the <a href="https://thediwire.com/nexpoint-advisors-submits-competing-merger-proposal-sierra-medley-company-merger/"><i>DI Wire</i></a> this morning that NextPoint has submitted an alternative proposal to the Medley/Sierra proposal. I have not read the proposal in full, but NextPoint's plan to scrap a $125 million internalization fee to Medley caught my attention. I am curious as to how this drama plays out. I do encourage you to take a look at Medley Capital Corp's (MCC) five-year stock chart.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com3tag:blogger.com,1999:blog-21846828.post-51716142557671560332019-01-28T17:26:00.001-08:002019-01-28T17:26:40.201-08:00New Non-Traded REIT Performance IndexesRobert A Stanger and the Institute for Portfolio Alternatives (IPA) just released a <a href="https://www.ipa.com/wp-content/uploads/2019/01/IPA-STANGER-MONITOR-WINTER-2019.pdf">comprehensive report tracking the performance of many non-traded REITs</a>.
The two indexes are a Life Style REIT index that includes all the
multi-share class non-traded REITs, and a NAV Index for REITs that
publish NAVs on a daily or frequent basis. The returns for both indexes
were determined without sales loads and with distributions reinvested,
with a start date of January 1, 2015.<br />
<br />
Shock upon astonished shock, the two firms - one that consults (Stanger)
to the non-traded REIT industry and one that is the trade and lobbying
group (IPA) for the non-traded REIT industry - have developed two
indexes that show non-traded REITs outperforming the big four publicly
traded REIT indexes. Ten percent offering costs be damned!<br />
<br />
Snark
aside, Stanger's methodology appears sound, but the data should be used
as a guide not as gospel. Stanger uses the REITs' published NAVs when
available, or Net Investment per share, as described by NASD Rule 2340.
I am wary of sponsor approved NAVs, not that they are inherently
inflated, but due to the gap between stated REIT NAVs and real market
values when REITs list (which seems to show inherent inflated
valuations). For example, American Finance Trust (AFIN) and Colony
Credit Real Estate ((CLNC) which along with certain Colony Capital
assets is the two NorthStar Real Estate Income REITs) trade well far
their last stated NAVs. Guide not gospel.<br />
<br />
The new
indexes' total return figures also include REIT distributions. I won't
go into the impact of paying more in distributions than is generated
from Funds from Operations, other than to say that REITs that over pay
their distributions better have a corresponding offset that lowers
NAV. At some point, systemic distribution over payment will be
corrected and reflected in a REIT's valuation. Gospel not a guide.<br />
<br />
This
is good time to release an index of non-traded securities. Public
REITs had a bad year in 2018 due to a poor performing overall stock
market and the impact of rising interest rates on REIT stock prices.
Non-traded REITs, while affected by rising rates, do not see an added
market discount in their NAV calculations. Markets are cyclical, so a
rise in REIT stock prices can erase index under performance in a short
period of time. Guide not gospel. <br />
<br />
In the mean time,
with the release of these new indexes, look out for the marketing blasts
from Hartman, the sponsor of Hartman Short Term Properties XX, Inc.,
the top performing Lifestyle REIT over a three-year period.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com8tag:blogger.com,1999:blog-21846828.post-1469073906702381822019-01-22T13:35:00.000-08:002019-01-22T13:35:14.012-08:00That's A Lot Of X-BoxesThe Toys-R-Us bankruptcy cost $200 million in adviser fees, presumably paid to bankers and attorneys, according to the <i>Financial Times</i>. The <i>Financial Times</i> does not like links to its articles, but you can and should Google-search for the <i>FT's</i> excellent series The Debt Machine. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-83308111485792741502019-01-22T13:15:00.000-08:002019-01-22T13:15:03.088-08:002019's First TurdThat did not take long. After their big announcement in late 2018, EJF Capital and Skybridge Capital have parted ways on the private $3 billion Skybridge-EJF Opportunity Zone REIT. EJF was to act as the sub-advisor to the REIT. Skybridge gave distribution firms' concerns about EJF's lack of experience managing real estate funds as the excuse to dump EJF. The <a href="https://thediwire.com/skybridge-ejf-capital-part-ways-opportunity-zone-reit/"><i>DI Wire</i></a> article does not mention a sub-advisor replacement.<br />
<br />
Opportunity zone investing is going to attract capital, possibly big capital, and just because a firm is first to market is no reason to throw it money. Private equity firms, or hedge fund investors like Skybridge Capital, are transactional investors. They look for opportunities, invest, recapitalize (take out profits), stabilize (take management fees), and exit (take more profits and return investor capital). Opportunity zone investing is a long-term process. It will ten years to realize the full tax benefits of opportunity zone investing. <br />
<br />
It makes sense to look at multiple opportunity zone sponsors and managers before investing. A long-term track record of successful development is crucial. A sponsor's ability to commit to the investment is crucial, too. The big real estate sponsors are bashed on a regular basis, but with opportunity zone investing, I am waiting to see deals, if any, from sponsors like Inland, Hines, Griffin, CNL, or Black Creek. I know that not all their deals have worked out, but they know the space, have the investor relations infrastructure, and have been around for more than ten years.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com49tag:blogger.com,1999:blog-21846828.post-963513436053174822019-01-08T10:00:00.000-08:002019-01-08T10:00:33.901-08:00Ripped ToughskinsSears Holdings, which owns Sears and Kmart, announced today that it is closing all its stores. After 126 years Sears is done. <a href="https://www.cnbc.com/2019/01/06/sears-rejects-eddie-lamperts-bid-to-save-company-will-liquidate-.html">This CNBC article </a>has a good summary of Sears' decline. I don't believe Sears' death was inevitable. It did face tough competition from Walmart and Target and then Amazon, but Target and Walmart have not gone out of business due to Amazon. Sears did not have the retail management expertise to face its rivals and shifting consumer tastes and buying patterns. This passage from the CNBC article gets to the heart of what happened to Sears:<br />
<br />
<blockquote class="tr_bq">
<div class="group">
(Eddie) Lampert saw opportunity in both (Sears and Kmart). The former
Goldman Sachs intern had wowed investors with his ability to turn around
the auto parts store . Armed with his hedge fund ESL Investments and
the confidence of a man nicknamed “the next Warren Buffet,” Lampert
believed he could concoct a similar turnaround in Kmart and Sears. He
believed he saw value where others didn’t. </div>
</blockquote>
<blockquote class="tr_bq">
<div class="group">
Lampert bought Kmart out of bankruptcy through ESL and ultimately combined it with Sears, to create Sears Holdings Corporation. </div>
</blockquote>
<blockquote class="tr_bq">
<div class="group">
But
Lampert was battling a national decline in the department store
industry, as shoppers abandoned the mall and favored casual over formal
wear. Department stores accounted for 14.5 percent of all North American
retail purchases in 1985 but only 4.3 percent last year, according to
Neil Saunders, managing director of GlobalData Retail. Sears’ peers,
like Bon-Ton and Mervyn’s, whittled away, while rivals like and poured money into their businesses to be among the ones left standing. </div>
</blockquote>
<blockquote class="tr_bq">
<div class="group">
<a alt="" aria-label="" class="" data-type="" href="https://www.cnbc.com/quotes/?symbol=WMT" role="" tabindex="" target="" title="">Walmart</a> and <a alt="" aria-label="" class="" data-type="" href="https://www.cnbc.com/quotes/?symbol=TGT" role="" tabindex="" target="" title="">Target</a>
proved relentless in their competition. The companies scaled quickly
and poured money into private label brands, which were better in quality
than those sold at Sears and Kmart. </div>
</blockquote>
<blockquote class="tr_bq">
<div class="group">
As Sears’ competitors
invested in its stores, Sears took a different approach. Lampert
believed that a strong loyalty program and data made investing in stores
and advertising optional, people familiar with the situation have said.
Then, as Sears’ sales fell and its losses piled up, it no longer had a
choice — investment fell out of reach. </div>
</blockquote>
<blockquote class="tr_bq">
Sears
shrank its store-base, in a desperate attempt of to regain
profitability. The stores that remained were in disarray, with outdated
fixtures, dark lighting and piles of unwanted clothes. Sears lost
relevancy and its customers’ loyalty.</blockquote>
I am not upset about Sears, but it is another example of private equity buying a retailer and then not having the retail skills to operate the business. Confidence and access to capital are great, but they are not the same as retail expertise. If you are a landlord and a private equity firm buys one of your retail tenants you better start reserving for the day that tenant stops paying rent.<br />
<br />
Separately, and much cooler than Sears' closure, is <a href="https://99percentinvisible.org/episode/the-house-that-came-in-the-mail/">this episode of the podcast </a><i><a href="https://99percentinvisible.org/episode/the-house-that-came-in-the-mail/">99% Invisible</a> </i>about Sears Roebuck selling complete home kits through the mail. The Sears' homes included everything to build a home, all the way down to light and plumbing fixtures, along with complete instructions. Sears may soon be gone, but some of its mail order homes and other buildings are still in use.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-51540431949883918052019-01-07T15:21:00.000-08:002019-01-07T15:21:06.120-08:00Energy EmbargoFS Energy and Power Fund announced in an <a href="https://www.sec.gov/Archives/edgar/data/1501729/000138713119000107/fsep-8k_123118.htm">8-K today </a>that it has decreased the price at which it it issues shares under its distribution reinvestment plan from $6.50 per share to $6.10 per share, or a drop of over 6%. I view the prices at which business development companies (BDCs) issue shares as part of their distribution reinvestment plans as a proxies for their net asset values. FS Energy and Power is an energy sector BDC, and is, apparently, facing the same industry-wide problems as other leveraged loan lenders, which I <a href="http://rationalrealist.blogspot.com/2019/01/financial-times-article.html">mentioned late last week</a>. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-63114716955161101732019-01-07T09:57:00.000-08:002019-01-07T09:57:00.922-08:00Another PE Example<a href="https://www.washingtonpost.com/business/economy/as-a-grocery-chain-is-dismantled-investors-recover-their-money-worker-pensions-are-short-millions/2018/12/28/ea22e398-0a0e-11e9-85b6-41c0fe0c5b8f_story.html?utm_term=.5d4030868b29&wpisrc=nl_rainbow&wpmm=1">Here is another example</a> of a private equity firm buying, stripping, ruining, and closing a retail firm. This <i>Washington Post</i> article describes Sun Capital's acquisition and management of Marsh Supermarkets, with a particular emphasis on how Sun Capital used bankruptcy to get out of meeting employee pension obligations. These stories seem to write themselves: Wall Street bankers start a private equity firm and raise investment capital, buy a business they now nothing about and have no skills to run or improve, sell valuable assets, leverage remaining assets, declare bankruptcy and close business, all the while taking out big fees and salaries. This is a lopsided ledger, but Sun Capital's investors got their money out, probably at some positive Internal Rate of Return, so Sun Capital can claim its investment in Marsh Supermarket a success to raise more money and inflict its management on another company.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com2tag:blogger.com,1999:blog-21846828.post-48195192264063648582019-01-03T17:31:00.001-08:002019-01-03T17:31:19.179-08:00Financial Times ArticleBoy, my last post was in late September and titled Disappearing Sponsors. I did not also mean disappearing blogger. Well, I have not gone away yet, although the sales to many alternative investments have gone away. I will be honest, though, I am thinking of more effective ways to express my thoughts on alternative investments. This blog will be just one outlet.<br />
<br />
<i>The Financial Times</i> does not like links to its website, but it has an article from December 30, 2018, on KKR, Franklin Square, and Blackstone GSO that is worth your time to find and read. The point of the article is that KKR has initiated big write-downs on some of the loans in the Franklin Square Investment Corp BDC that were originated by Blackstone's GSO. (This BDC, after its merger with Corporate Capital Trust, re-named itself FS-KKR Capital Corp and trades under the symbol FSK.) The write-downs is not new news to anyone that watched the falling stock price of FSIC or the lowered NAVs of the FS Investments' non-traded BDCs. What has caught the attention of analysts is KKR's ballooning of the watch list, which tripled in 2018, and now encompasses 28% of the portfolio.<br />
<br />
It looks like the high yield and leveraged loan market is going to be a story in 2019. <i>The Financial Times</i> has had some good recent articles on the issues facing the high yield market. In the KKR article noted above, <i>The Financial Times</i> notes that, industry wide, 70% of the leverage loans being issued are "covenant-lite," which means the loans lack the strict controls that would allow creditors to seize assets of under performing loans. This also means that the underlying business do not have to meet as strict an operating criteria as do loans with stronger covenants. The saying that "it was all good until it wasn't" could be 2019's leveraged loan market mantra.<br />
<br />Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com3tag:blogger.com,1999:blog-21846828.post-24687404807012587332018-09-20T11:10:00.000-07:002018-09-20T11:10:58.267-07:00Disappearing SponsorsLast summer I watched <i>And Then There Were None</i>, a televised version of Agatha Christie's famous novel of the same name, where guests on a weekend stay at a desolate island mansion end up murdered, one by one. Yesterday's news that Steadfast is exiting the non-traded REIT and credit business adds to the list of sponsors that are pulling their offerings. I feel like I am watching a non-murderous version of <i>And Then There Were None. </i> <br />
<br />
Last year Steadfast tried to rebrand as Sitra Capital Markets, but the made-up name did not resonate and Steadfast made the decision to shuttered its Apartment REIT III and its Sitra Alcentra Global Credit Fund. The REIT raised $197 million over two-and-a-half years and the credit fund raised just $36 million in about fifteen months. <br />
<br />
CNL is not stopping syndication, but did announce last week that it was
not extending the offering for Healthcare Properties II, which only raised about $45 million since its inception in March 2016. Like CNL, Griffin Capital is not stopping syndication but announced in mid-August the close of its Essential REIT II offering. According to filings, the REIT has formed a special committee to review a potential strategic alternative. Essential Asset II started its latest offering in September 2017, but only raised $7.3 million in 2018. <br />
<br />
Sponsors continue to suspend their offerings and/or exit the syndication
business one-by-one. Based on industry sales, there are so many candidates that I don't even
want to start to guess what sponsor will be the next to yank its slow selling program. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-46234586668813817512018-09-18T10:49:00.000-07:002018-09-18T10:49:31.564-07:00Ten Years OnI just re-read a bunch of my posts from 2008 as the financial world collapsed. I sure posted a lot in 2008, several posts a day. I noted Lehman's collapse, now seen as the pivotal point in the financial crisis, with a "WOW!" But it was just one of two big deals that September weekend, and it happened alongside with the implosion and Government bailout of AIG, action which was spurred by the market's negative reaction to the non-bailout of Lehman. <br />
<br />
I don't want to relive that trauma. I remember turning on Bloomberg TV late at night that fall, after everyone in house had gone to bed, and watching the Asian markets to see what dread Europe and the US could expect the following day. Not that my fears and news addiction would have any impact, but I had to know. <br />
<br />
It is hard to see inflection points as significant as they happen, especially if they occur amidst other events that appear major. But Lehman's demise was different. It showed that the Fed and Government had to step in to save the financial system from a complete collapse, especially as much larger firms than Lehman teetered towards financial ruin.<br />
<br />
What scares me today is that I know the lessons of 2008 have not been learned, or if learned are not being heeded. The housing market is inflated in many parts of the country, lending standards are down, and regulations enacted after 2008 to protect the financial system have been relaxed or eliminated. It is important to note, too, that some areas devastated in 2008, like Southern California's <a href="http://www.latimes.com/business/la-fi-victorville-housing-recovery-20180909-htmlstory.html">Victor Valley</a>, have been slow to recover, even after ten years. These communities need a stable banking system to continue their recovery. <br />
<br />
I am also frightened to think that any future financial crisis will be met with much stiffer resistance to Government bailouts of banks. This thinking is wrong because letting banks fail is going to wipe out retirement accounts and the housing market, including million's of peoples' equity in their homes. Argue your political ideas on Twitter, not with the equity I have built over many years with a conservative mortgage. <br />
<br />
<br />Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com1tag:blogger.com,1999:blog-21846828.post-38203677759220669432018-08-22T11:26:00.000-07:002018-08-22T11:26:27.774-07:00Colony and RXR: Make Investors WholeDear Colony and RXR,<br />
<br />
Your non-traded REIT, NorthStar/RXR New York Metro Income, Inc., at around $38 million in investor capital, is just a speck in both your commercial real estate investment empires. It is unfortunate that this REIT did not catch on with financial advisors, especially given the quality of the RXR management team and its long-term successful track record. It's an ugly reality that sometimes financial advisors and their clients find investment funds that pay unsustainable 8% distributions and acquire dubious assets preferable to lower initial distributions and the potential for real long-term value appreciation.<br />
<br />
As you know, New York Metro Income has two investments and a net asset value of $8.49 per share. I read your <a href="https://www.sec.gov/Archives/edgar/data/1603671/000160367118000055/nsrxr8-k08102018.htm">filing yesterday, August 21, 2018,</a> about your plan to liquidate the REIT's assets through a series of asset sales and internal transactions, and your generous offer to forfeit your shares to increase distributable cash to investors. I did not, however, after reading the filing several times, note any mention of an intent to return investor capital in full. I figure, based on a $10.00 per share offer price and the $8.49 NAV per share, that Colony and RXR would need to contribute $5.7 million, or about $2.9 million each to fully return investor capital. I know that $3 million is not nothing, but it is a small amount to pay for firms of your size, and the goodwill you'd accrue with investors, financial advisors, and the broker dealers that invested with you would be far greater than $3 million.<br />
<br />
Sincerely,<br />
<br />
Rational RealistRational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-81812496897960263152018-08-07T14:04:00.000-07:002018-08-07T14:04:27.659-07:00Bad LendersThis Bruce Kelly article in <a href="http://www.investmentnews.com/article/20180807/FREE/180809943/unregistered-advisers-linked-to-latest-alleged-south-florida-lending?NLID=daily&NL_issueDate=20180807&utm_source=Daily-20180807&utm_medium=email&utm_campaign=investmentnews&utm_visit=126420&itx[email]=72d2a91a50486c5fcd09413b63db910b625620bd9a4c2658be7f57dfb486bb96%40investmentnews"><i>InvestmentNews</i></a> on two failed lenders raises some important issues. The lenders are being investigated for loan fraud. I am not sure if the fraud is from the securities the two lenders sold to investors or the loans they made to small businesses. For investors that likely lost their entire investment, it does not really matter. One red-light-flashing issue to me is proper return for appropriate risk. Any investment that is paying 10% for a less than one-year hold period is risky; probably much riskier than the 10% potential return. Assuming there is no fraud involved, I wonder how many investors would sign up if they were told that there is a better than 50% chance they could lose all their money to get 10%? Not many. <br />
<br />
The second issue, and again assuming no fraud, is that lending and credit analysis is hard. It is hard even for the biggest banks, which work in a strict regulatory environment with its own lending guidelines, and which have spent decades honing their credit analysis. These banks are still far from perfect and they are considered the best. Big private equity firms and their debt-focused divisions or competitors*, while outside of much of the regulatory environment facing banks, have established their own credit criteria and safeguards, but again these big non-bank money lenders are far from perfect. Then you get down to firms like the fraudsters in the <i>InvestmentNews</i> article. I can't imagine these outfits having credit expertise and procedures that approach even the smallest community bank. Investors had no chance.<br />
<br />
*Non-bank banks continue to grow and are an important part of the credit industry. According to a recent <i>Baron's </i>article, private debt fund managers raised $107 billion in 2017. <br />
<br />
<br />Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-4337670363603430252018-07-19T12:42:00.001-07:002018-07-19T12:42:30.412-07:00No High FlyerAmerican Finance Trust Inc.'s stock price has disappointed on its first trading day. I am not sure what prices I was expecting this morning, but with an original $25.00 offer price to shareholders, a Net Asset Value of $23.56, and only half the stock available for initial liquidity, I was hoping for a higher price than the approximate $15.00 per share the stock seems to have found. While disappointed, I am not surprised. At $15.00 per share, AFIN is yielding 7.3% to new buyers.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-79517203161481682952018-06-12T08:36:00.000-07:002018-06-12T08:51:06.731-07:00Good People, Good TimesHere is a wild story from the <a href="https://nypost.com/2018/01/26/real-estate-mogul-says-ex-biz-partner-plotted-to-inject-him-with-lsd-beat-him-in-an-elevator/"><i>New York Post</i></a>. It details the elevator butt-kicking former United Realty executive Jacob Frydman received from his ex-business partner Eli Verschleiser. I bet investors in United Realty (now First Capital Real Estate Trust)
would have liked to have had a few whacks in that thumping. The following is from the article:<br />
<blockquote class="tr_bq">
<div style="-moz-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: #2a2a2a; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; line-height: 24px; margin-bottom: 20px; margin-top: 0px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">
<span style="font-size: small;"><span style="font-family: inherit;">Once inside, “Verschleiser struck Frydman with his fists about the head, abdomen and legs,” the suit claims.</span></span></div>
<div style="-moz-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: #2a2a2a; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; line-height: 24px; margin-bottom: 20px; margin-top: 0px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">
<span style="font-size: small;"><span style="font-family: inherit;">Then he “scratched Frydman’s face and pulled out portions of Frydman’s hair,” according to court papers.</span></span></div>
<div style="-moz-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: #2a2a2a; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; line-height: 24px; margin-bottom: 20px; margin-top: 0px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">
<span style="font-size: small;"><span style="font-family: inherit;">Frydman attempted to hit the emergency button while screaming for help, but Verschleiser towered over him, pressing the upper-floor button and then stomping on the older man’s chest, the suit says.</span></span></div>
<div style="-moz-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: #2a2a2a; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; line-height: 24px; margin-bottom: 20px; margin-top: 0px; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">
<span style="font-size: small;"><span style="font-family: inherit;">“If you do not immediately end the lawsuits against me, I will put an end to you,” Verschleiser allegedly warned.</span></span></div>
</blockquote>
This is an ugly story, but the lie in the first sentence taints the whole article. It states that Frydman is the "head of a $2 billion Manhattan real estate company." Please. This knuckle head and his assailant formed United Realty, could not raise any real money, had the REIT buy garbage real estate (some of which from Frydman and none of which was in Manhattan), then sold the REIT's advisor for $25 million to someone dumber than Frydman.<br />
<br />
The following property descriptions are from United Realty's June 30, 2015, 10-Q, the last financial statement that either United Realty or the renamed First Capital Real Estate Trust filed:<br />
<blockquote class="tr_bq">
<span style="background-color: white; color: black; display: inline; float: none; font-family: "times new roman" , "times" , serif; font-size: 13.333333015441895px; font-style: normal; font-weight: normal; letter-spacing: normal; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">As of June 30, 2015, we owned a 69.2% interest in a joint venture that owns a residential property located at 2520 Tilden Avenue in Brooklyn, New York, or Tilden Hall, a 14.6% interest in a joint venture that owns a residential property known as 14 Highland Ave., Yonkers, New York, or 14 Highland, a medical building located at 945 82<span class="Apple-converted-space"> </span></span><sup style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: black; font-family: "TIMES NEW ROMAN", TIMES, serif; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;">nd<span class="Apple-converted-space"> </span></sup><span style="background-color: white; color: black; display: inline; float: none; font-family: "times new roman" , "times" , serif; font-size: 13.333333015441895px; font-style: normal; font-weight: normal; letter-spacing: normal; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">Parkway, Myrtle Beach, SC, or Parkway, an office building located at 7 Carnegie Plaza, Cherry Hill, NJ, or 7 Carnegie, an undeveloped land parcel on Route 9, Ulster County, NY, or Route 9W, and a 7.26% interest in a joint venture that owns a commercial building located at 402-404 Lippincott Drive, Marlton, NJ, or the Lippincott Property. In addition, as of June 30, 2015, we owned a 76.7% interest in a joint venture that owns a mortgage note secured by properties located at 58 and 70 Parker Avenue, in Poughkeepsie, NY, or Parker.</span></blockquote>
Google map some of these gems<i> </i>and tell me Frydman is a $2 billion dollar man.Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com3tag:blogger.com,1999:blog-21846828.post-850263289192236082018-05-16T10:34:00.000-07:002018-05-16T10:34:10.091-07:00WSJ, ADISA, and WoodbridgeI received an email from the trade group ADISA this morning that was mostly a reprint of its letter to the <i>Wall Street Journal</i>. The letter responds to the <a href="https://www.wsj.com/articles/a-private-market-deal-gone-bad-sketchy-brokers-bilked-seniors-and-a-cosmetologist-1525710617"><i>WSJ's</i> May 7, 2018, article</a> on the risks posed by private placements, with a particular focus on bad securities brokers. The article used Woodbridge Group of Companies and the brokers that sold it as its examples. The reporting is detailed, with its prime implication being that brokers that sell private placements are likely to have regulatory issues. The ADISA letter states brokers that sell private placements are not bad. The truth is likely somewhere in the middle. <br />
<br />
I wrote about <a href="https://rationalrealist.blogspot.com/2017/12/rotten-wood.html">Woodbridge last December,</a> and included points that should serve as warnings to investors and brokers that are considering investing in or offering private placements. I won't repeat them all, but in short, if an investment sounds too good - offering 8% one-year returns (Woodbridge debt investment example cited in the article) in a 1% investment environment - it is too good; or you are taking on so much risk the return should be at least double. Think another way: why is a sponsor is willing to pay investors 8% when it should be able to borrow cheaper? Is that smart? Maybe, but probably not. The answer is that the sponsor likely can't get a loan or other cheaper forms of capital, which is why it is offering such high interest rates. And if the sponsor can't get cheaper financing, maybe the rate it is offering private placement investors is too low. If a bank won't lend to a sponsor, neither should you. <br />
<br />
The <i>WSJ</i> article stated as fact that there were $710 billion in broker-sold private placements in 2017. This is just staggering. The private placements I see in the broker dealer world could not have totaled more than $10 billion in 2017, and that includes DST exchange products. What are the other $700 billion in private, broker-sold investments? Unfortunately, the biggest selling sponsor in the apparent tiny private placement world I see is one that offers products that pay investors an unsupported 8% distribution. <br />
<br />
In today's or any day's investment environment <b>there is no low risk way to earn 8% income from an investment</b>. This is true no matter what a broker says or a fancy brochure states. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com4tag:blogger.com,1999:blog-21846828.post-16354389337535096602018-05-11T10:49:00.000-07:002018-05-11T10:49:35.709-07:00LVP - Least Valuable PlayerI did not follow last year's merger of two non-traded REITs, MVP REIT I and and MVP REIT II, which raised a combined $165 million, but recent filings from the resulting REIT are worth a read. Upon completion of the merger last fall, the new entity renamed itself The Parking REIT. The merger is an example of a non-liquidity capital event, which are becoming all to familiar, but that is another post for another day. In early April, the new REIT filed Form 12b-25, which is a notice of late filing. The Parking REIT stated that it could not file its financial statements due to the following:<br />
<br />
<blockquote class="tr_bq">
<div style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman", Times, serif; font-size: 10pt; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; margin-top: 12pt; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;">
In February 2018, the Audit Committee of the Registrant's Board of Directors (the "Audit Committee") engaged independent legal counsel to conduct an internal investigation arising from<span class="Apple-converted-space"> </span><span style="font-family: "times new roman" , "times" , serif; font-size: 10pt;">the Audit Committee's receipt of allegations from an employee of MVP Realty Advisors, LLC, the Registrant's external advisor (the "Advisor"), regarding possible wrongdoing by the Registrant's Chairman and Chief Executive Officer, Michael V. Shustek, relating to (i) potentially inaccurate disclosures by MVP American Securities, the broker-dealer affiliated with the Advisor, to the Financial Industry Regulatory Authority, Inc. ("FINRA") relating to total underwriting</span><span class="Apple-converted-space"> </span>compensation paid by the Advisor and its affiliates (other than the Registrant) in connection with the initial public offerings of MVP REIT, Inc. and th<span style="font-family: "times new roman" , "times" , serif; font-size: 10pt;">e Registrant and (ii) potential inaccuracies in personal financial statements of Mr. Shustek that were provided to one or more of the Registrant's lenders in connection with mortgage loans or guarantees where Mr. Shustek is a personal non-recourse carve-out guarantor.</span></div>
<div style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman", Times, serif; font-size: 10pt; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; margin-top: 12pt; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;">
<span style="font-family: "times new roman" , "times" , serif; font-size: 10pt;">The Audit Committee commenced the internal investigation and engaged independent legal counsel promptly upon becoming aware of the allegations.<span class="Apple-converted-space"> </span></span>As a result of the pendency of the internal investigation, the Registrant is unable to finalize the Registrant's annual financial statements for the periods covered by the Annual Report. <span class="Apple-converted-space"> </span><span style="font-family: "times new roman" , "times" , serif; font-size: 10pt;">While the investigation is ongoing, the Audit Committee has not found any irregularities in the Registrant's financial statements or accounting procedures, but no assurance can be given that such findings will not occur.</span></div>
</blockquote>
<br />
Just your normal financial chicanery. On May 3, 2018, The Parking REIT's board's Audit Committee issued the results of its investigation. I read the Audit Committee's findings as a confirmation of the allegations, but because of the REIT's plan to correct its past mistakes the board has been placated. The REIT's broker dealer, MVP American Securities, amended its disclosures, and the REIT's Chairman and CEO Michael Shustek corrected the inaccuracies in his financial statements. In addition the REIT agreed to hire a third party consultant to assess the REIT's internal controls, and the REIT will train employees on legal and regulatory obligations, and adopted the following Audit Committee recommendations:<br />
<div style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; color: black; font-family: -webkit-standard; font-style: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;">
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Regularly evaluating the Board's composition for, among other things, independence;</div>
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Requiring the CFO to also report directly to the Board and to meet independently with the </div>
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Board at regularly scheduled meeting and on at least a quarterly basis; and</div>
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Assess and evaluate, at least on an annual basis, potential additional corporate </div>
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governance enhancements with the advice of outside legal counsel.</div>
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The Board declined to implement the Audit Committee's recommendation to bifurcate </div>
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the roles of Chairman and Chief Executive Officer, but agreed to further evaluate this </div>
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proposal for possible implementation in the future.</div>
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<br />
It is no shock that the board declined to limit Shustek's authority. Board and Audit Committee member Allen Wolff resigned from the board, because his "philosophy and vision" are not aligned with the thinking of a majority of the board. I am glad this REIT solved all its problems so fast and booted that pesky board member. I can't think of any systemic financial or regulatory problems that a little training won't solve.<br />
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It does not take a genius to know that the wrong person resigned from this REIT and who is its LVP (Least Valuable Player).<br />
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<br />Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0tag:blogger.com,1999:blog-21846828.post-39301406159418234832018-05-09T09:53:00.000-07:002018-05-09T09:53:55.482-07:00Lack of ResourceResource Realty has withdrawn its "innovative" office REIT. The <a href="https://thediwire.com/resource-income-opportunity-reit-close-offering/">board of Resource Income Opportunity REIT voted </a>to terminate the REIT's offering. After a three-year offer period that included changing the REIT's structure to a perpetual life REIT, the board realized the REIT's investment premise stunk and that no broker wanted to sell it and no investor wanted to own it. That the REIT only raised $2.1 million from investors over its extended offer period is a good indication of the market's low opinion of the REIT. What a wasted effort.<br />
<br />
C-III Capital Partners acquired Resource Realty's parent company, Resource America, in September 2016. The expertise of C-III provided no sales boost to Income Opportunity, or to Resource's other investment funds. After almost two years of C-III's tenure, Resource has had no new offerings, and its existing funds' capital inflows have been weak. Through March, and after a two-year offer period, Resource's flagship apartment REIT, Resource Apartment REIT III, had only raised $45 million, which would include any sponsor contribution. That is bad and looks like a "failure to launch" situation. Resource's closed end funds' inflows are better, but not by much, and one, its interval fund, has seen redemptions since inception of 16.4% of capital received. The credit fund has raised $100 million net of redemptions in three years (bad), and the interval fund has raised $242 million net of redemtions in five years. The interval fund, which was one of the first offered to broker dealers, is a distant third in terms of capital inflow behind the Griffin and Bluerock interval funds.<br />
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C-III needs to rethink its $200 million acquisition of Resource America. C-III either needs to create attractive products or shut down Resource's lame offerings all together, not that anyone would notice. Rational Realisthttp://www.blogger.com/profile/08886526093283532105noreply@blogger.com0