Due to a quiet period imposed by the Securities and Exchange Commission, Hines executives can't comment for another two months. The Hines REIT Inc. is being set up as a Maryland corporation, but will be run out of the Houston headquarters with Jeffrey Hines as head of the advisory board.
The REIT will use up to 90% of the gross proceeds from an initial offering of 200 million share at $10 per share to start buying properties. Another 20 million shares, priced at $9.75 each, will be issued as part of a dividend reinvestment program. The shares will be sold directly to investors.
According to the SEC prospectus, target acquisitions will be CBD or suburban markets in major metropolitan cities. Like others in pursuit of office product, the plan is to chase high-quality properties with key locations, substantial amenities and quality tenants. The REIT will leverage up to 50% of the aggregate value of the real estate investments. In the past decade, Hines has raised $6.7 billion in equity for 45 privately-offered real estate programs.
Keith D. Allaire, managing director with Shrewsbury, NJ-based Robert A. Stanger & Co. and Hines' adviser, tells GlobeSt.com that minimum qualifications to buy into the REIT are pretty low. Investors must have a minimum annual income of $45,000, net worth of $150,000 and be willing to buy the minimum, 250 shares for $2,500.
Allaire says publicly registered, non-trading REITs have been steadily increasing in popularity. Three years ago, private REITs had $900 million in equity. In 2001, their equity was up to $2 billion and the amount doubled in 2002. By the end of this year, equity in private REITs could reach $8 billion.
Allaire says the advantage to a direct participation program is investors are not subject to the vagaries of the stock market. The value of the shares is based on the total value of the REIT's assets. The disadvantage is it is not a very liquid investment. In the Hines prospectus, potential investors are forewarned the private nature of the offering will make it difficult to sell shares or they may have to do so at a substantial discount. Another downside is the possibility for a conflict of interest in "competition for tenant and leasing opportunities" with Hines' privately owned portfolio as well as the allocation of personnel and resources. Allaire says possible conflicts can be mitigated by alternating opportunities between competing programs or embed a slight change in the acquisitions focus.
But, Allaire emphasizes, there is ample opportunity for small investors, who for the first time can tap Hines' highly successful real estate expertise and resources. "To have a firm of Hines' caliber, experience and reputation make this product available, is an important milestone for the direct participation industry," he says.
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