Bottom-fishing investors are looking to hook owners of Behringer Harvard real estate funds and partnerships who have seen the value of their investments take steep downturns.
According to statements on the website of Behringer Harvard Holdings LLC, unsolicited lowball offers for less than 5% of the shares outstanding were made last month for two Behringer Harvard deals, the Behringer Harvard Short-Term Opportunity Fund I, a limited partnership, and the Behringer Harvard REIT I Inc., a nontraded real estate investment trust.
Such limited lowball offers, known as minitenders, have become increasingly common for shares of nontraded REITs that were hammered when the commercial real estate market spiraled downward in 2007-08.
Investors purchased most of those shares and units at $10, the standard offering price of a nontraded REIT.
Peachtree Partners is offering 12 cents per unit for the Short-Term Opportunity Fund I, while CMG Legacy Income Fund LLC is offering $1.80 per share for the REIT I, according to the statements on Behringer's Harvard's website. Both offers represent a small fraction of the funds' most recent valuations.
Critics of minitenders routinely say that the offers take advantage of unwary shareholders.
YET TO BITE
So far, owners of the Short-Term Opportunity Fund, which was revalued at 40 cents per unit at the end of last year, from $6.45 a year earlier, have yet to bite, said the investor making the offer.
“People are hanging in there, and I'm shocked as hell by it,” said Ira Gaines, the owner and principal of Peachtree Partners, a firm that specializes in buying limited partnerships at discounts. “There's supposed to be a tsunami of sellers because everyone is broke.”
Behringer Harvard REIT I also has seen a sharp drop in its value. At the end of December, it was revalued at $4.64 per share, from $4.25 a year earlier.
“We've tendered on this REIT before and gotten a decent response. Folks at Behringer Harvard probably don't look at us as friendly, but we're trying to provide liquidity where there isn't any at a price at which we can make a profit,” said CMG president Mark Swenson.
“We're not trying to take anybody by surprise. And if investors are willing to hang in there, they will keep the shares,” Mr. Swenson said.
“Behringer Harvard's redemption program for the majority of investors has been suspended for some time,” he said. “And the secondary market [for the REIT] is costly and time-consuming.”
Behringer Harvard has been imploring clients to stay away from the minitenders.
In statements on its website, the firm said that the Peachtree and CMG offers were “meant to take advantage of you by buying your shares at a price below the current estimated value in order to make a significant profit.”
Nicole Traycoff, a spokeswoman for Behringer Harvard, said that the firm would make no comment about the offers beyond the statements to investors on the company website.
Other sponsors of nontraded REITs have taken similar stances and advised investors to decline such minitenders, though the sponsors commonly acknowledge that investors have various needs for liquidity with investments that don't trade on an exchange. A secondary market exists for such illiquid investments, but offers on the secondary market often are below the current valuation for nontraded REITs. The low offers, however, typically are not at the dramatically discounted levels of the minitenders.
“While [investors] have their individual liquidity needs and must evaluate this offer accordingly, we recommend that [investors] not tender their offers to Peachtree,” Behringer Harvard said in its statement.
The Securities and Exchange Commission has taken a dim view of minitender offers, saying in a 2008 statement that such offers “have been increasingly used to catch investors off guard.”
“Many investors who hear about minitender offers surrender their securities without investigating the offer, assuming that the price offered includes the premium usually present in larger, traditional tender offers,” the SEC statement said. “But they later learn that they cannot withdraw from the offer and may end up selling their securities at below-market prices.”
bkelly@investmentnews.com
