Valuation Methodology Differences

Wells REIT II announced its share valuation last week at $7.47 per share.  In May, Hines REIT announced a $7.78 share valuation.  The two REITs bought similar type properties - major market, Class A office buildings -  over the same approximate time period during the mid-2000s.   It makes sense that the two values are close.  It is important to note the distinctions in the valuation methodology used by the two REITs. 

Wells REIT II was clear in its 10-Q that it valued only its real estate, and did not include a value for the REIT as a business, or its enterprise value.  Here is the wording from Wells REIT II:

Our estimated per-share value was calculated by aggregating the value of our real estate and other assets, subtracting the fair value of our liabilities, and dividing the total by the number of our common shares outstanding, all as of September 30, 2011. The potential dilutive effect of our common stock equivalents does not impact our estimated per-share value. Our estimated share value is the same as our net asset value. It does not reflect "enterprise value," which includes a premium for:

 

•	the large size of our portfolio, although it may be true that some buyers are willing to pay more for a large portfolio than they are willing to pay for each property in the portfolio separately;

•	our rights under our advisory agreement and our potential ability to secure the services of a management team on a long-term basis; or

•	the potential increase in our share value if we were to list our shares on a national securities exchange.

 

Our key objectives are to arrive at an estimated per-share value that is supported by methodologies and assumptions that are appropriate based on our current circumstances and calculated using processes and procedures that may be repeated in future periods. Wells REIT II believes that this approach reflects the conservative investment principles that guided the assembly of our portfolio over the past eight years, and comports with industry-standard valuation methodologies used for nontraded real estate companies.

Details:

 

As of September 30, 2011, our estimated per-share value was calculated as follows:

Real estate assets	$	10.13		(1)
Debt	(2.65)			(2)
Other	(0.01)			(3)
Estimated net asset value per-share value	$	7.47
Estimated enterprise value premium	None assumed
Total estimated per-share value	$	7.47

(1)

Our real estate assets were appraised using valuation methods that we believe are typically used by investors for properties that are similar to ours, including capitalization of the net property operating income, 10-year discounted cash flow models, and comparison with sales of similar properties.  Primary emphasis was placed on the discounted cash flow analysis, with the other approaches used to confirm the reasonableness of the value conclusion. Using this methodology, the appraised value of our real estate assets reflects an overall decline from original purchase price, exclusive of acquisition costs, plus post-acquisition capital investments, of 8.1%.  We believe that the assumptions employed in the valuation are within the ranges used for properties that are similar to ours and held by investors with similar expectations to our investors.

 

The following are the key assumptions (shown on a weighted-average basis) that are used in the discounted cash flow models to estimate the value of our real estate assets:

Exit capitalization rate	7.19	%
Discount rate/internal rate of return ("IRR")	8.19	%
Annual market rent growth rate	3.31	%
Annual holding period	10.3 years

While we believe our assumptions are reasonable, a change in these assumptions would impact the calculation of the value of our real estate assets.  For example, assuming all other factors remain unchanged, a change in the weighted-average annual discount rate/IRR of 0.25% would yield a change in our total real estate asset value of 1.83%.

 

(2)	The fair value of our debt instruments was estimated using discounted cash flow models, which incorporate assumptions that we believe reflect the terms currently available on similar borrowing arrangements to borrowers with credit profiles similar to ours.

(3)	The fair value of our non-real estate assets and liabilities is estimated to materially reflect book value given their typically short-term (less than 1 year) settlement periods.

Hines REIT, which I discussed earlier this year here, uses the following language, and it does have an enterprise component:

The estimate of the per-share value was made with consideration primarily of (1) valuations of the Company’s  real estate investments, including estimates of value which were determined by the Company’s management and independent third parties using methodologies that are commonly used in the commercial real estate industry (including discounted cash flow analyses and reviews of current, historical and projected capitalization rates for properties comparable to those owned by the Company); (2) valuations of notes payable, which were determined by an independent third party; and (3) the estimated values of other assets and liabilities which were determined by management, as of March 31, 2011.  In addition, the Company engaged an independent third party to review management’s market value estimates as of March 31, 2011 for selected assets that represented a substantial portion of the Company's property portfolio, and such third party has opined that management’s market value estimates are fair and reasonable.  Finally, the Board also considered the historical and anticipated results of operations of the Company, liquidity requirements and overall financial condition, the current and anticipated distribution payments, the current and anticipated capital and debt structure, and management’s and the Advisor’s recommendations and assessment of the Company’s prospects and expected execution of the Company’s operating strategies.

Hines REIT's first three valuation points look like Wells REIT II's, but unlike Wells, none of the Hines' assumptions are disclosed.  The last sentence in the Hines REIT disclosure is where the analysis slips into the qualitative.  The board considered additional items like anticipated results of operations, anticipated capital structure, and the "Advisor's recommendations and assessment of the Company's prospects and expected execution of the Company's operating strategies."  It's naive to think the board would factor in negative projections.  It's not disclosed what percentage of Hines REIT's $7.78 per share valuation is represented by these intangible assumptions. 

I chose Hines in my comparison because I had its filing language readily available, and it's similar to Wells REIT II.  Hines REIT is not the only non-traded REIT that adds in an enterprise component when valuing its shares.  I am not against non-traded REITs having an enterprise valuation component, because non-traded REITs are companies and there is a value to that.  I just need to see how the REITs value their ongoing business, because in my opinion, it's an easy way for non-traded REITs to report a higher share value. 

I appreciate Wells REIT II's board's decision to disclose the assumptions used in determining a per share valuation.  The board should get some credit for excluding the enterprise component, which had it been included, would have resulted in a higher net asset value.

I am skeptical of any valuation for a non-traded REIT until it lists on an exchange.  That's the only valuation that's going to matter to most investors.

Is This TIC Article For Real?

A link to this article on Tenant In Common investments just showed up on my Yahoo! Finance front page.  It was written by a securities attorney who is listed as a contributor to Forbes.  What a sloppy, credibility-destroying article.   I'd expect an attorney to at least get basic facts right.  He starts by saying that Tenant In Common (TIC) investments offered safe, guaranteed returns.  I am not aware of any TIC deal offered guaranteed returns.  Certain TIC deals were structured with contractual lease payments to pay income (Master Leases), but this is not a guarantee. 

The attorney calls TIC deals "strange partnerships."  Wrong.  As the name states, a TIC deal is direct, tenant in common ownership of a piece of real estate, not a partnership.  Investors own a specific percentage of a property, not an interest in a partnership, which in turns owns the property.   Direct property ownership is why investors were able to defer taxes. 

I love the contradictory use of the negative buzz words - private, illiquid and volatile - in this sentence:

Problem is, the value on the partnership, which is privately held and completely illiquid, can be extremely volatile and not nearly as safe as promised.

Yes, TIC deals were private and illiquid, all of which was fully disclosed.  Private, illiquid investments cannot be volatile.  Volatility implies a market that frequently sets prices - up and down - which an illiquid investment does not have.  Any investor buying a TIC deal had just sold an illiquid property that had been held privately.   There are many faults with TIC deals, but the private and illiquid argument fails, and the use of the term "volatile" is the author trolling for clients. 

The other negative buzzword the author uses is "stock broker."  TICs were not sold by stock brokers, but by financial planners and advisors that focused on real estate.  Transaction oriented stock brokers avoid illiquid deals that are going to tie up investor capital for five to ten years or more. 

There are more problems with the article, but I've wasted enough time with it.  If I was an unhappy TIC investor this author would be the last attorney I'd call.

Wells REIT II $7.47 NAV

It's been a long day.  I'd been trying to finish a project that's taken much longer than I expected, and then I get hit with two bombshells.  The first was the news on Grubb & Ellis Healthcare REIT II, which I noted in the previous post.  The second was the $7.47 per share price of Wells REIT II.  Maybe I shouldn't have been surprised at the low valuation, but I was.  I was expecting a Net Asset Value per share closer to $8.50 or $9.00, not below $7.50.  Here is an Investment News article on the filing.  (The article implies a front end load of 20.3% - $5.9 million raised an $4.7 million in the ground - which seems high too me.)   The REIT's dividend is not being adjusted, so the 5% yield on the original $10 per share investment is now a 6.67% yield on the new valuation.  (Oh boy, a yield increase!)  A third party, Altus Group, Inc., provided the valuation.

After a few hours digesting the new valuation, maybe it makes sense.  Office property prices are down more than 40% from their 2007 peak.  Wells REIT II acquired its properties from 2004 to 2011, with the majority acquired in the 2004 to 2007 time range, which was before the credit crisis and during a period of lower cap rates than in today's market.  (Remember, real estate prices and cap rates move inversely, with low cap rates meaning high prices, and high cap rates signifying low prices.)  Many of Wells REIT II's properties are suburban office properties, and suburban properties are just beginning to attract investors and see a rebound in pricing.  For many investors in Wells REIT II the $7.47 share price, while unsettling, is not directly relevant because the REIT is non-traded.  Investors who are reinvesting dividends will do so at the new lower price, which is a benefit as the current distribution will now buy more shares.  Shareholders' real value will be realized when the REIT is listed on an exchange, is merged or sold, or sells its assets directly.

Update:  The Snyder Kearny Blog likes Wells REIT II's disclosure related to the valuation.  Maybe the added disclosure will start a trend.

Griffin-American Healthcare Trust, Inc.

The board of directors for Grubb & Ellis Healthcare REIT II, Inc. determined that it was in the best interest of the REIT to transition advisory and dealer manager duties performed by affiliates of Grubb & Ellis Company to American Healthcare Investors, LLC and Griffin Capital Corporation, who will serve as co-sponsors of the REIT.  Grubb & Ellis Healthcare REIT II will change its name to Griffin-American Healthcare Trust, Inc.   The REIT will remain externally advised per this convoluted paragraph:

As a result of the co-sponsorship arrangement, Griffin-American Healthcare REIT Advisor, LLC (“Griffin-American Advisor”), an affiliate of Griffin Capital, will serve as our new advisor, and will delegate advisory duties to Griffin-American Healthcare REIT Sub-Advisor, LLC (“Griffin-American Sub-Advisor”), a sub-advisor jointly owned by Griffin Capital and American Healthcare Investors. Griffin Capital Securities, Inc. (“Griffin Securities”), an affiliate of Griffin Capital, will serve as our new dealer-manager. We are not affiliated with Griffin Capital, Griffin-American Advisor or Griffin Securities; however, we are affiliated with Griffin-American Sub-Advisor and American Healthcare Investors(.)

I recommend reading today's 8-K filing that describes the transaction and rational behind it in more detail. 

Can't sponsors get more creative than automatically resorting to using "American" in their name.  Including "American" somewhere in the name does not give a deal or a sponsor additional credibility.  Credibility is earned over time through performance, not through what a company calls itself or its deals.  Why don't sponsors just come out with the BFDE (Best F*c%&ng Deal Ever) REIT, because that is what I believe is being implied anytime "American" is used in a title.  (And, isn't there already a similar sounding non-traded REIT in the marketplace, American Realty Captial Healthcare Trust?)

The winners in this deal, long-term, are the principals of Griffin Capital and American Healthcare Investors, LLC, but this is always the case.  This transaction is a coup for Griffin Capital and its principal Kevin Shields, as Grubb & Ellis Healthcare REIT II has been raising about ten times more equity per month than Griffin Capital's non-traded REIT.  I can almost hear Griffin's Shields paraphrasing Charlie Sheen, "Winner, winner chicken dinner.  Winner, winner Shields dinner."

Another Sunday Read - Financial Crisis Edition

Here is a good article in today's Washington Post about financial crisis revisionist history.  The article is good because I agree with its premise.  The financial crisis, at its core, was fueled by the quest for yield, caused by artificially low interest rates, combined with an economic environment that masked the real underlying risk of many securities.  This also caused investors to relax their guidelines.  Blaming the government instead of honestly examining the real reasons for the crisis will ensure future crises.

Morningstar, Call Me

Morningstar is getting into writing analysis on non-traded REITs.  Here is a link to an InvestmentNews article on the decision.  On the surface, it's hard to see how this is not good news.  I think Morningstar will have its work cut out for it, especially based on the tone of this quote from Philip J. Martin, the person Morningstar hired to direct its non-traded REIT efforts:

“Presently, Morningstar does not believe a significant investment in nonlisted REITs makes sense for most investors as there are still too many drawbacks and unresolved issues,” he wrote in the note.” “We believe listed REITs to be the most appropriate option, from the standpoint of both the alignment of shareholder interests and long-term risk/return potential.”


But the deficiencies can be remedied, Mr. Martin said. 

Let's not kid ourselves, the above comment is code for saying that non-traded REITs' fees are too high for representatives, broker / dealers and sponsors, and high fees limit non-traded REITs' chances for success.  I'd like to be the fly on the wall when Morningstar tells Nick Schorsch, Jeffery Hines, Leo Wells and all the other non-traded REIT executives that they make too much money, and oh-by-the-way they need to disclose how much they're paid by the REITs' external advisors.  And wait until Morningstar finds out how non-traded REITs spend their O&O money. 

One thing I don't expect from Morningstar research is a Z-Score predicting that the entire non-traded REIT industry is a bankruptcy risk, which was recently produced by one of what InvestmentNews called "hodgepodge" due diligence firms.  With (faulty) red herring analysis like that, Morningstar's presence is needed. 

Morningstar, you need to call me, I'll shorten your learning curve in this industry where each of these REITs are different.  

MF Global Nightmare

Wow.  A huge story out of the MF Global implosion this morning.  Regulators are trying to determine whether MF Global tapped into customer accounts to support its bad trades.  This story keeps getting worse.

Sunday Morning Oil & Gas Articles

There are two oil and gas articles worth reading this morning.  The first is a Washington Post opinion article about how the United States' oil policy is becoming more Western-centric and less dependent upon the Middle East.  The new ability to exploit oil fields in Canada, North Dakota and Texas, and new finds off the coast of Brazil are why the reliance on Middle East oil is declining, and the decline is expected to continue. The article was written by Daniel Yergin.

The second article is from the New York Times and reports how hydraulic fracking has impacted Cooperstown, NY.  Neighbors are battling each other over the fracking issue.  This is not a cheery article, especially when you read this paragraph:

As it turns out, despite the furor here, the Marcellus Shale, a vast rock formation under New York, Pennsylvania and other states, is so shallow near Cooperstown it is not clear how much gas would be available and what kind of drilling would take place here. And no one expects that fracking will ever come to Cooperstown itself.

People are creating personal and familial chasms that will last generations, all over a contentious issue that may not ever happen.  

Jumpy

It is interesting how one 200 share trade is able to move American Capital Realty Property (ARCP) stock up 6.3%.  Here is a screen shot from Google finance this morning showing the move:



Yesterday, ARCP stock closed at $10.80 per share.  According to an S-11/A filed yesterday, ARCP principals and affiliates own 36% of its stock.  (I had figured the principal and affiliate ownership at 34%, based on ARCP's Form 4 filing last week, which show 1,900,419 shares owned by principals and affiliates, out of 5,580,00 shares issued in ARCP's early September IPO.)

Update:  As as a follow-up, ARCP closed at $10.53, on volume of 2,008 shares.  No, I am not going to post on this stock everyday, it was just that a 6.3% move on 200 shares caught my attention.

Real Estate Prices

I have not posted this data in several months.  The Moody's / REAL Commercial Property Price Index rose 2.4% in July, and is now up 7% from a year ago and 15% from its post-peak low in April of this year.  The share of distressed deals was the lowest portion (21.7%) of the index since January 2010.   The Bloomberg article linked to above provides data on other commercial real estate indexes for comparison:

Other property price indexes have showed a slowdown. CoStar Group Inc.’s National All Property Type Composite Index slipped 0.5 percent in August from the previous month, the Washington- based real estate data provider said Oct. 12. The index was down 3.6 percent from a year earlier and is 34 percent below a peak reached in 2007.

Green Street Advisors Inc., a real estate research company in Newport Beach, California, reported commercial property values were unchanged in September from the previous month and advanced 15 percent from a year earlier. Prices are down 9 percent from their August 2007 peak, the company said Oct. 6.

Green Street’s index is weighted by asset value and includes deals that are in negotiation or under contract.

This was a positive report.

Blackstone and GE Deal

Last week, a Blackstone fund purchased 82 suburban office properties from Duke Realty for $1.08 billion.  This supports recent reports that the demand for commercial real estate is spreading from major, downtown metropolitan locations to suburban and smaller metropolitan areas.  The Duke Realty properties were located in the South and Midwest.  GE Capital is providing finance on the transaction to the tune or $800 million, or 80%.  An 80% loan-to-value is the highest I have seen since the Credit Crisis, without the use of a bridge loan or other forms of junior debt.  This signifies lenders' acknowledgement of a widening real estate recovery.  According to the Bloomberg article linked to above, GE will initially keep the loan on its balance sheet, but may syndicate it in the future.

CMBS News

I have been busy the last few weeks, which is why blogging has been light.  I saw this article yesterday on CMBS delinquencies that I thought interesting.  Here is most of the article:

Analysts said the rate of delinquent loans increased to 9.36% from 9.01% in August. The rate has stayed higher than 9% for all of 2011.

The delinquency rates for all five property types rose in September from the prior month and are higher than the year earlier: retail to 7.11% from 7.08% in August; office to 8.16% from 7.36%; industrial 11.39% from 11.2%; hotel 14.81% from 14.56%; and multifamily 15.33% from 15.21%.

One new CMBS deal worth $1 billion priced last month and was more than offset by the $5.9 billion of legacy CMBS that exited the space during September, lowering outstanding CMBS to $594.6 billion, according to Moody's.

I am always surprised that retail has the lowest delinquency rate and multifamily the highest.  I'd intuitively think retail would have high defaults because so many retail properites were built in response to the new housing that was developed in the 2000s.   I don't know what the author of the article means with the statement that "$5.9 billion of legacy CMBS that exited the space during September."  These loans obviously refinanced with new CMBS loans. 

Housing, Finance and Jobs

Here is a post from Calculated Risk from last week discussing a Fed Study on mortgage originations, and how lack of home equity and tough underwriting standards are limiting refinancings despite record low mortgage rates.  A quote:

Back in 2003, about 35.5% of all homeowners refinanced. In 2010 only 10.7% of homeowners refinanced. On page 62, the study provides a table by FICO score, year of origination, and states with steep house price declines compared to all other states ("Steepest declines" consists of the five states with the steepest declines in house prices from 2006 to 2009: Arizona, California, Florida, Michigan, and Nevada; "other" consists of all remaining states.) Only a few borrowers with low FICO scores refinanced in 2010, and the rates for refinancing were lower in the five states than in the other states.

This is important - although we may see sub 4% conforming 30 year fixed rate mortgages soon, many borrowers will not be able to refinance.

Then yesterday the LA Times had this article on poor home sales, which are now at forty-eight year low:

The August read on new home sales showed properties selling at a seasonally adjusted rate of 295,000, down 2.3% from a revised July rate of 302,000 and just 6.1% above August 2010, according to the Commerce Department.

I am convinced the lack of financing and record low home sales are directly related.  Until the housing market rebounds the economy is going to muddle along, with employment staying near current levels.  Low home sales is not a new trend, and annual new home sales have fallen dramatically since peaking in 2006 at over 1,900 completions.  The table below shows housing completions for the past five years:

2007          1,399

2008          1,002

2009            694

2010            552

2011 (est)    449

The data is from last summer that I obtained on Calculated Risk, and based on July and August figures, it looks like the 2011 estimate of 499,000 new home completions may be optimistic.

Strict lending standards are hindering the rebound in housing and the economy.  The Fed, through Fannie Mae and Freddie Mac, which control over 90% of the mortgage market, can boost the economy by loosening lending standards and generating housing demand.  Relaxing mortgage requirements does not require a return to 2005 standards.  It means letting qualified people buy homes and allowing current homeowners to refinance their homes.  It makes sense to allow a qualified homeowner to lower his or her mortgage payment.  The alternative is not better.

A deliberate Fed strategy of easing home lending requirements will not require new Federal borrowing, or Federal spending, or Congressional debate, or a Presidential speech.  Fannie Mae and Freddie Mac can act on their own to make home lending more accessible, and the economy will benefit, including employment as construction and ancillary housing related jobs increase.  Sometimes you have dance with the one who brought you to the party, and to get out of the current slow economy, we need to focus on housing and finance, the two ugly dates we're stuck with at this gloomy soiree.  It's time to dance.

Valuations

I saw this Investment News article on Tuesday. It is my opinion that the non-traded REIT industry has treated David Lerner and the Apple REITs as a one-off, isolated incident.  This is a misguided, myopic view.  The non-traded REIT industry needs to proactively address their share price valuations, or resign itself to the impact of FINRA and SEC dictates.   The valuation issue impacts the entire industry, and is not isolated to the Apple REITs.  The key passage from the Investment News article is below:

The Finra rule proposal potentially would shorten that time period considerably, said Kevin Hogan, executive director of The Investment Program Association, a trade group for alternative-investment sponsors, including nontraded REITs and the broker-dealers that sell them. Last week, the IPA held a members-only webinar with Finra and Securities and Exchange Commission officials, who discussed the rule proposal.

Finra's proposal will be followed by the customary period of time for broker-dealers and industry sponsors to comment, Mr. Hogan said. But Finra's focus on the length of time nontraded REITs record an estimated valuation is clear, he said.

“Finra will try to have that date to be shorter and more definitive,” Mr. Hogan said.

Nancy Condon, a spokeswoman for Finra, said that she doesn't know when Finra will publish the rule proposal for comment.

It appears that regulators' concern about the valuation of illiquid nontraded REITs stemmed from the valuation of the Apple REITs, which are sold exclusively by David Lerner Associates brokers, Mr. Hogan said.

A large, if not only, part of the non-traded REITs' and broker / dealer community's ostrich valuation strategy is an unwillingness to admit - on client statements - the true impact of the initial load.  All REITs have an immediate valuation that is net of the offering costs (load), giving a REIT that investors paid $10 for a net value of $8.50 to $9.00.  No REIT, whether public or private, traded or non-traded, is buying real estate assets that gives an immediate 18% to 11% appreciation (the amount needed to recover a 15% to 10% initial load).  Even though all the initial fees of non-traded REITs are disclosed, and investors should understand the fees they are paying, registered representatives don't want to deal with investors' questions when sale discussion points become reality on paper, and investors want to know what happened to 10% to 15% of an investment they just purchased. 

If all REITs were required to publish their net valuations, it should have the impact of driving down front-end fees, as brokers are going to want to avoid fee impact conversations.  It will also shorten hold periods as smaller loads are easier to overcome.  Earlier and more frequent valuations will benefit investors, sponsors and brokers.

Hines in the Wall Street Journal

There is an interview with Jeff Hines in today's Wall Street Journal.  No mention of Hines' non-traded REITs in the entire article, except maybe this passage:

WSJ: Regarding the fund business, I was told it's not yet half of the overall business of Hines, but it is approaching that. What is the balance then?
Mr. Hines: Up through the '80s, we were basically a development firm. We would put a site together, and then go find an investor who would decide whether to come into the deal or not. The investor was making the ultimate decision of whether to invest in that specific project.  In the early '90s, we changed dramatically in three ways. One, we went international. Two, we started to get into the acquisition business as well as the development business. We found that our skill sets worked just as – all of the things that help you make and manage a good acquisition are all of the things we were doing on the development side. The third big change was, when we went international, we went to Europe and emerging markets. To get back to your original question, we now have a big group of various funds that we've raised where we are playing that fiduciary role. (Emphasis added.)

Or, maybe not with the follow-up question and answer:

WSJ: It's still the case that the investment management business is approaching being half the company?
Mr. Hines: In incremental (new) business that we do, it's certainly more than that. Recently, we're talking to a lot more very large investors and doing programmatic deals with maybe one or two investors rather than 10 or 12. But, again, it's one where we have discretion in most cases over making the decision of where to invest.

America's Got Talent

I do not like the show America's Got Talent, and hate is not too strong a word. But it's a staple on TV in my house over the summer.  I choose to do other things than subject myself to this popular show.  I did, however, catch the credits after last night's finale, and in a blink saw that the winner gets paid the $1 million prize in a form of a forty-year annuity.  I don't know the terms of the annuity, but at today's interest rates it's probably not much more than the straight-line $25,000 per year.  I saw on another blog that contestants can choose to take a discounted lump sum payment, which would probably be closer to $400,000.  Good money, but nowhere near the advertised $1 million.  What crappy terms.  Come on NBC, pay the winners the full $1 million up front, you can afford it.  I wonder if all reality shows deceive screw their winners in this manner.  

Auspicious Anniversary

Today is the third anniversary of Lehman Brothers' collapse, which took the credit crisis out of Wall Street and to the entire global economy.  If you haven't already seen it, I would recommend HBO's riveting Too Big to Fail, based on Andrew Ross Sorkin's book of the same name.

ARC IPO

American Realty Capital Properties, Inc. had its IPO late yesterday at $12.50 per share, and is now listed on NASDAQ with the symbol ARCP. ARCP raised $69.75 million and has a market capitalization of $116 million.  As part of its IPO, it declared an annual dividend of $.875 per share, for a yield of 7% based on the IPO price of $12.50.  I need to watch this REIT's filings to see how it dealt with all its debt. 

KBS REIT I

Here is a link to a Bloomberg article on Gramercy Capital's settlement with KBS REIT I and other creditors on $549 million of mortgage debt, on which Gramercy defaulted in May 2011  As part of the settlement, KBS REIT I will receive:

About 317 commercial properties in the REIT’s Gramercy Realty division were given up today to lender KBS Debt Holdings LLC in an initial transfer, Gramercy Capital said in a statement. The agreement obligates KBS to acquire all remaining Gramercy Realty entities and properties by Dec. 15 and releases the REIT from outstanding loan balances and contractual and default interest.

Here is another paragraph from the article:

KBS, along with Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C), held senior and junior mezzanine loans on the Gramercy properties and threatened to foreclose on about 900 properties in May after Gramercy Capital failed to pay off debt.

The article did not give specifics as they relate to KBS REIT I.  At June 30, 2011, KBS REIT I carried the mezzanine loan on its book with a $459 million book value, subject to a $187 million repurchase agreement.  I'm waiting for KBS REIT I to file an 8-K explaining the transaction and its ramifications.