Inland Drops Transaction Fees for Unlisted REITs

Mitchell Sabshon

CHICAGO— Inland Real Estate Investment Corp. , a sponsor of unlisted real estate investment trusts, has just decided to eliminate all real estate-related transaction fees for currently offered and future unlisted REITs. Officials from the Oak Brook, IL-based company tell GlobeSt.com that the move sets Inland Investments apart from the competition and allows more of investors’ funds to go toward acquisitions, and more closely aligns the investors’ interests with the company. “It’s a risk for us, but in the long run, this is the right thing to do,” says Mitchell Sabshon , president and chief executive officer of Inland Investments, part of The Inland Real Estate Group of Cos., Inc. If, for example, the transaction fees amounted to 2%, that means the company could give up $20 million on a $1 billion portfolio, and instead, plough that equity into actual assets. “We think by eliminating these fees we can deliver better performance for investors.” Real estate-related transaction fees are typically levied by sponsors for the acquisition, disposition and financing of real estate. The company will still charge a basic business management fee and a performance-based fee earned only when a REIT’s return exceeds the performance target. That means this method “also provides a great deal of motivation to an investment manager,” says Sabshon. who has led the company since 2013. “We only earn higher fees if we outperform for an investor.” “This is a unilateral move on the part of Inland Investments,” he adds, and may be unique at this point. “I believe in the fundamental value of the unlisted REIT, but that does not mean the product can’t change.” And since other sponsors can generate fees by acquisitions as well as performance, “it remains a significant concern that transaction fees cause a conflict of interest.” “Eliminating these transaction-based fees creates a business model that leads the non-listed REIT industry into the future,” says Sabshon. “Consistent with our over 45-year history of innovation, this action underscores Inland Investments’ continued leadership in the evolution of the non-listed REIT.” “By not charging transaction fees, we are bringing a lower, institutional-type compensation structure to our non-listed REITs,” says Daniel Goodwin , chairman of The Inland Real Estate Group of Companies, Inc.