Nonlisted real estate investment trusts raised $83 billion in the past decade. Now, as the U.S. real estate market rebounds and they face deadlines to return money to investors, the companies have emerged as some of the property industry’s biggest deal makers.
At least three of the biggest purchases of U.S. REITs announced in the past six months involved nontraded companies, according to data compiled by Bloomberg. Three of the companies listed shares last year, the most since at least 1990, based on data from industry tracker Blue Vault Partners LLC. Yesterday, Cole Holdings Corp., one of the largest REIT sponsors, said it would merge with one of its companies and go public.
Nonlisted REITs -- which aren’t traded on exchanges and are primarily marketed by brokers to individual investors -- are poised for more deals after opportunities to generate liquidity dried up during the recession, said Mark Decker, head of real estate investment and corporate banking at BMO Capital Markets. They typically have a lifespan of five to 10 years, meaning that the companies that raised almost $20 billion during the property boom in 2006 and 2007 may soon start seeking exits.
“All indications are that investment bankers will be very busy,” said Daniel Goodwin, chairman and chief executive officer of Oak Brook, Illinois-based Inland Real Estate Group of Cos., the largest sponsor of nonlisted REITs. “There will be mergers and acquisitions, there will be IPOs, and there will be secondary offerings.”
Returning Investment
Nontraded REITs are typically managed by a founding sponsor such as Inland, which earn fees for services such as overseeing properties and making acquisitions. The REITs raise money through share sales and acquire properties with the proceeds, with a requirement to eventually return money. Until then, they are generally illiquid as investors collect dividend payments.
Inland American Real Estate Trust Inc., with $10.8 billion in assets, had an annualized dividend yield of 6.9 percent at the end of the third quarter, according to the REIT’s website. The dividend yield of the Bloomberg REIT Index of 129 public companies is 3.5 percent.
Inland American is among nonlisted REITs looking at exits. The Oak Brook-based company is working with investment bankers on options that would give shareholders the ability to get money back, according to a December investor presentation. Last week, Wells Real Estate Investment Trust II Inc., an owner of 82 buildings, said it changed its name to Columbia Property Trust Inc. and separated from its adviser, Wells Real Estate Funds, as a step toward listing shares or liquidating its assets by October 2015, as required under its charter.
Active Exploration
“Nontraded REITs are actively exploring ways to return capital to their investors,” said A.J. Agarwal, a senior managing director at Blackstone Group LP’s real estate unit.