NEW YORK CITY-The importance of due diligence and transparency when it comes to non-traded REITs probably can't be overstated, nor was it during a presentation on the future of the REIT market and retail sales at the New York Non-Traded REIT Industry Symposium on Friday.
Knowing who and what you're dealing with, as well as having open and honest communication between broker/dealers, clients and sponsors, is vital to keeping the niche healthy, said a group of industry executives during an Information Management Conference-sponsored gathering—which was first held 10 years ago.
“We don't like surprises,” said Denise Faber, VP and director of research, Advisor Group. “If a sponsor's distribution coverage isn't what we expected, if they start focusing on something other than what they said they would, it's a problem.”
Added Richard Carlesco Jr., CEO, IBN Financial Services Inc., “There weren't a lot of there weren't a lot of broker/dealers, or sponsors, 10 years ago. Now, it's very important to have a due diligence officer; you have to dig deep.” Agreed Frank Tauches, EVP, AP Holdings, Inc., and general counsel, American Portfolios Financial Servies Inc. “Due diligence is the main focus that's going to drive individuals.”
In an effort to maximize such research—much to the surprise of those in attendance at the symposium—IBN even shares third-party research reports with its brokers. “More information is never bad,” Carlesco noted. “You need to know what you're selling. It's incumbent on us to provide the products that will do what they say will do.”
His firm is relatively small, he added. “We have 50 producers, not 500, so it's much more controlled.” Others also seem value in third-party firms, albeit in a different way.
“Third party due diligence firms have evolved,” noted Tauches. “I have a duty to know them as well as the sponsor, because the initial report they provide, the dialogue and follow up, that's a key to our relationship with sponsors and with the due diligence firms. Broker/dealers and sponsors should be very aware of that.”
Relationships between broker/dealers and sponsors have changed over the last decade too, Tauches asserted. “They're more solid. There's a much closer relationship.” Added Faber, “The process has evolved. Sponsors have realized the value of keeping due dilligence officers aware of what's going on. If you can keep us informed, we can let the advisors know.”
These firms have strict criteria for getting—and staying—on their platform. “We are looking for some sort of track record; a history,” said Tauches. “It doesn't have to be in the non-traded REIT space, but the company should have solid real estate experience.” He also seeks out information. “We want to know who the sponsor is doing business with, the background of the sales, management and acquisitions team—this is all key.”
Some other types of experience also factor in, added Faber. “While the investment experienced is important, so is the experience on the broker/dealer side. It's a different sell to an advisor for a retail client versus an institutional client, so the new sponsors I've seen come into the space seem to struggle, but when they bring in people with experience on the broker/dealer side, it helps them.”
Others see great value in product diversity. “We're looking for not the same-old, same-old. I don't want five apartment REITs.” Tauches values diversity too, he noted. “We look to have different products on our shelves for our advisors.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
