NEW YORK CITY-Professionals from all facets of the non-traded REIT space convened at the Marriott New York Downtown for the New York Non-Traded REIT Industry Symposium yesterday, the seventh annual conference hosted by the Information Management Network. Capital raising, dividend pricing and firms’ ability to pay them were recurring themes during most of the morning sessions on the first day of the two-day conference.
After welcoming remarks by Alston & Bird LLP partner Rosemarie A. Thurston and Proskauer Rose LLP partner Peter M. Fass, the sessions kicked off with a “Non-Traded REIT Market Update: 2010—A Pivotal Year,” a presentation by Keith D. Allaire, managing partner of Robert A. Stanger Co. Inc. He indicated that the non-traded public REIT industry has grown and matured significantly since its emergence in the late 1990s and has undergone some changes in the past few years. Today, he noted, there are 55 such vehicles in the market, 33 of which are tracked by Stanger, and the three biggest REIT sponsors today are Cole Real Estate Investment Services, Apple REIT and Behringer Harvard.
Of the 33 non-traded REITs Stanger tracks, the average MFFO (modified funds from operations, or FFO after acquisition expenses) for full-year 2009 was 109.1%, and redemption values are down across the board. In terms of the outlook and opportunities for the industry, Allaire said that market watchers are waiting for Sept. 16, when the government will unveil new deficit-reduction legislation and tax policy. Over the next three years, he said the main issues for non-traded REITs will be the general economy and credit conditions; firms’ response to legacy issues; private-placement scandals and busts; distribution capacity versus potential sponsor entrants to the market; the evolution of the product’s structure and distribution; and perceptions regarding real estate fundamentals and performance.
Allaire also unveiled the findings of what he dubbed “Operation Pinocchio: Stanger Cover Ops Forces,” an April poll of broker dealers. The results of the survey are notable, he said, since “broker-dealers tend to be the gatekeepers” of the industry.
When asked which investments will provide the best returns over the next five years, 42.4% of broker-dealers chose the energy and commodities sector, while 24.2% said stocks and just 18.2% felt that real estate was the top investment opportunity. Within real estate, multifamily and healthcare are expected to be the best performing segments, each garnering 31% of the vote.
As an acquisition target over the next two to three years, 18.4% of broker-dealers believe real estate will be the “best” and another 52.6% said it will be a “significant” buying opportunity. For 2010, more than 72% of those polled believe non-traded REITs will see between $6 billion and $8 billion in total investment. Yet the sector will face some challenges; 37.8% of survey participants believe the issue having the most negative effect on non-traded REITs is poor real estate fundamentals, while 27% cited dividend cuts.
When asked about the most important factors in non-traded REIT sponsors’ ability to gain access to broker-dealers, the overwhelming response was track record. The majority of those polled also said that improved liquidity is what will fuel increased sales volume, and 61.3% said the most effective action the industry could take to improve investment in non-traded REITs is to publish uniform metrics.
And finally, Stanger asked broker dealers about policies, politics and current events, posing the following question: It’s been reported that the country of Cuba ran out of toilet paper. How to solve the problem? Nearly 62% of survey respondents said the best solution would be to send Cuba copies of the US tax code—a telling sign of how these entities view tax policies.
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