The recent rash of well-established commercial real estate companies launching investment vehicles intended to become non-traded REITs will likely provide a much-needed boost to the commercial real estate investment sales market. At this time, several firms intend to capitalize on current market conditions by acquiring high quality properties at historically low prices. If all goes as planned, the acquisition activities of these major investors could get the market flowing again on property sales of $20 million or larger, which have been nearly non-existent in this recession.
Following are details on recent major REITs or funds that have launched and expected to offer a particular benefit for retail property owners looking to shed assets. But many also have announced intentions to target distressed office, industrial and multifamily buildings for potential acquisition as well.
INLAND LAUNCHES $5 BILLION OFFERING TO BECOME A DIVERSIFIED REIT BY END OF 2009
Since the Securities and Exchange Commission declared Inland Diversified Real Estate Trust's registration statement effective last month, the Trust has commenced efforts to raise up to $5 billion in capital, offering up to 500 million shares of common stock for $10.00 per share and 50 million shares of common stock under its distribution reinvestment plan at $9.50 per share. Little more than a year has passed since Inland Diversified filed its initial registration statement with the SEC and by the end of this year, the public company, which will not be listed on stock exchanges, intends to qualify as a REIT.
While Inland has long been recognized a retail specialist, the plan for Inland Diversified is to build a diverse portfolio of commercial real estate. Its acquisitions/ investments could encompass retail, office, multi-family, student housing, industrial/distribution warehouse, lodging, medical office/healthcare related facilities, public infrastructure assets and triple-net single use properties; as well as REITs, real estate operating companies, real estate-related securities, joint ventures and real estate-related debt.
Inland Diversified said it intends to focus on acquiring properties with existing net leases and loans that do not exceed 85% of the associated property's appraised value. Aside from being diverse in property type, the REIT is not limiting itself by geographic region - it will consider properties throughout the U.S. and Canada.
Inland has plenty of experience in launching and managing REITs. Prior to Inland Diversified, it sponsored Inland Real Estate Corporation, Inland Retail Real Estate Trust, Inland Western Retail Real Estate Trust and Inland American Real Estate Trust. With $4.4 billion in assets, Inland Retail was formed in 2000. The REIT was sold in 2007 for $6.2 billion to the Developers Diversified Realty. Inland American has by far been one of the most active purchasers of retail real estate during this recession, including its $427 million acquisition of 30 shopping centers that were part of Macquarie's joint venture with Regency Centers.
STONEMASON PARTNERS FUND I TO ACQUIRE $100M IN SHOPPING CENTERS AND DISTRESSED ASSETS
On August 31, Miami-based Stonemason Partners announced the completion of its initial round of fundraising for a new investment fund built up over the last year through securing numerous investors. The full service commercial real estate company said it plans to acquire more than $100 million worth of multi-tenant retail assets and distressed commercial property throughout the Southeastern and Eastern Seaboard states over the next four years.
Stonemason said it plans to acquire properties that are candidates for redevelopment, repositioning, and/or re-tenanting, and said it is particularly interested in "grocery anchored shopping centers, located on major routes with good traffic counts and in neighborhoods with favorable demographics in both population and household income."
Gustaf Arnoldsson, managing member of Stonemason, described its position as "bullish on the market opportunities" available. “We are in the beginning stages of a monumental shift in the market," Arnoldsson concluded in a statement. Launched in June 2008, Stonemason has 15 property management accounts and owns several property assets in South Florida.
HINES COMMENCES GLOBAL REIT IPO TO ACQUIRE DISTRESSED CRE
On August 13, international real estate firm Hines commenced fund-raising for Hines Global REIT -- yet another public, non-traded REIT seeking to raise funds. Hines hopes to raise up to $3.5 billion in this offering.
Hines Global plans to invest in a diversified portfolio of quality commercial real estate properties and other real estate equity and debt investments, including office, retail, industrial and multi-family, split about 50/50 between the U.S. and overseas. The company said it hopes to "capitalize on current distress in the market to acquire attractive properties at historically low prices," and it will be particularly on the hunt for commercial real estate with value-add potential. The REIT's concentration is on single asset or portfolio deals ranging from $20 million to $30 million.
Hines’ first non-traded public REIT, Hines Real Estate Investment Trust, was established in 2004 and now in its third offering period, the REIT has raised approximately $2.4 billion since its inception.
THOMPSON NATIONAL PROPERTIES TO INVEST $1 BILLION IN CORE RETAIL
In early August, Irvine, CA-based Thompson National Properties got its green light from the SEC to launch TNP Strategic Retail Trust -- yet another public, non-traded REIT. TNP is offering $1 billion in common stock to the public at $10.00 per share, while an additional $100 million in stock is being offered to Thompson's current stockholders at $9.50 per share.
TNP Strategic Retail's plan as a retail REIT is to invest, as either a full ownership or joint venture capacity, in neighborhood, community and lifestyle shopping centers, as well as freestanding, single-tenant retail properties. Additionally, the REIT plans to invest in other real estate related assets, such as acquiring or originating mortgages and mezzanine debt; pooled investments (CMBS, CDO, etc); and common and preferred equity investments in other REITs or real estate companies.
The company plans to funnel substantially all its funds into properties within the western United States. The REIT's investment focus is expected to be comprised of 80% core (existing centers with at least 80% occupancy and minimal near-term lease rollover) and 20% value-add repositioning projects.
NRDC ACQUISITION TO ACQUIRE NECESSITY-BASED RETAIL UNDER REPLACEMENT COST AS A RETAIL REIT
Also in early August, NRDC Acquisition Corp., a public investment vehicle already traded on the New York Stock Exchange under the symbol "NAQ", announced its intention to qualify as a REIT through its sponsor, NRDC Capital Management, by October 23, 2009.
NRDC Acquisition plans to invest in and manage a portfolio of "necessity-based" retail properties -- primarily grocery and drug store-anchored community and neighborhood shopping centers. However, the REIT may also consider investing in power centers, regional malls, lifestyle centers and single-tenant retail locations, that are leased to national, regional and local tenants.
Richard A. Baker, who will serve as executive chairman of the REIT, said, "We believe that the current market environment presents an extraordinary opportunity to acquire retail properties at compelling yields and at values substantially below their replacement cost."
WITH $373.8M IN ACQUISITIONS UNDER ITS BELT, COLE CREDIT PROPERTY TRUST III SEEKS REIT STATUS BY END OF YEAR
Cole Credit Property Trust III, Inc. ("CCPT III") was declared effective by the SEC on October 1, 2008 and later commenced its effort to raise up to $2.5 billion through offering 230 million shares of common stock at $10.00 per share and 20 million shares of common stock under its distribution reinvestment program at $9.50 per share. As of August 14, 2009, CCPT III had issued 49.5 million shares of common stock. Like Inland Diversified, CCPT III is public, but not traded on the stock exchange and intends to qualify as REIT by the end of this year.
CCPT III intends to acquire freestanding, single-tenant and multi-tenant retail properties net leased to investment grade and other creditworthy tenants. Specifically, it focuses on buildings occupied by necessity-based tenants, such as drug stores, family restaurants, home improvement stores, and others. It will also consider acquiring single-tenant industrial and office buildings if there is a substantially compelling yield involved. This strategy fits the standard mantra of its parent company, Phoenix-based Cole Real Estate Investments, which has been one of the most active acquirers of retail real estate throughout this recession.
During the six months ended June 30, 2009, CCPT III acquired 57 properties, including 49 single-tenant, 100% leased, freestanding retail properties, and eight land parcels subject to ground leases, for an aggregate purchase price of $253 million. These properties are concentrated in Texas, Virginia and Nevada and tenant concentration lies in the home improvement, restaurant, drugstore, sporting goods and discount retail industries. Since, CCPT III has acquired an additional 24 properties, all 100% leased, for a total price of $120.8 million.
VORNADO SEEKS TO RALLY PRIVATE INVESTORS TO INVEST IN DISTRESSED ASSETS
In the beginning of July, Vornado Realty Trust said it was seeking to raise $1 billion for a private equity fund dedicated to investing in "high quality assets at distressed prices." The proposed fund, dubbed "Vornado Capital Partners LP", would become the company's only vehicle for real estate and real estate-related investments, according to the Wall Street Journal. Focusing on distressed retail and office properties in the New York and Washington D.C. markets, Vornado predicted returns in excess of 20% on investments that could be made by Vornado Capital. Several analysts speculated that despite seeding the fund with its own $200 million, tapping private investors for the rest would be "a tall order" in today's market and added that the bottom barrel deals Vornado is after aren't widely available.
On July 29, the Wall Street Journal reported that Vornado was planning to raise up to $600 million through a bond sale that would qualify under the government's TALF program. The deal, which would involve offerings of commercial mortgage backed securities, would hit the market sometime this fall. Vornado could use proceeds from the CMBS sale to rid itself of its most expensive unsecured debt. The collateral backing this debt will likely be primarily comprised of the shopping centers Vornado owns.
By Sasha M Pardy: 9/02/09