May List
NY Residential REIT, which is planning to sell 5 million shares at $10 each, is governed by SEC rules and review, and might eventually apply to list shares on the New York Stock Exchange or Nasdaq, according to its filing. Commencement Capital, the external management firm that will run the day-to-day operations of the REIT, will collect fees of 1 percent of the purchase price for each property it acquires, and 0.125 percent of the market value of its common shares quarterly, according to SEC filings. The management firm also will get an “exit fee” of 2 percent of the REIT’s total capitalization should the company merge or be sold.
“That structure is very tough in the U.S. REIT space, because most U.S. REITs are internally managed,” said Dirk Aulabaugh, managing director at Green Street Advisors LLC, who consults for public and private real estate firms and isn’t involved in NY Residential REIT. “A lot of time fees are based on assets under management so, as you can imagine, you get more fees the more assets you manage. One issue is: do you just grow for the sake of growing?”
External Management
Externally managed companies make more sense for smaller REITs because the costs of staff fall to the manager, rather than the REIT, the firm’s executives said. “If we were internally managed, the REIT would pay the management salaries as opposed to fees and likely wouldn’t be able to cover those for some time and would make it difficult for the staff to grow,” Stein said in an email.
Commencement Capital executives said that NY Residential REIT is the first of many location-specific companies it will launch through the new SEC investment rules. They’re also considering a Miami-based hospitality REIT, and another focused on Washington, D.C., residential property.
NY Residential REIT’s blank slate for property is an added benefit in that the company isn’t saddled by older assets in weaker markets that sometimes drag on the performance of larger landlords created through mergers, said Morris, 62, formerly a managing director at brokerage Jones Lang LaSalle Inc. and the mid-Atlantic director of acquisitions for Boston Properties Inc.
Morris and Stein say that investors have no surprises about where the company will place its focus.
“We’re telling you exactly what and where we’re buying -- it’s Manhattan residential,” Stein said. “It’s super-specific.”
This article was provided by Bloomberg News.