As the rules of the game change, some give up, others double down.
More changes roiled the nontraded real estate investment trust industry last week among large, longtime REIT sponsors, while a relative newcomer racked up another success.
Old-timers reporting significant changes last week included Wells Real Estate Funds, Hines, and Thompson National Properties LLC.
Meanwhile, American Realty Capital, a relative newcomer that's stirring up the industry by cutting fees and making transparency of information a priority, enjoyed a successful first day of trading last Friday after the merger of one of its nontraded REITs and a listed REIT, American Realty Capital Properties Inc.
These moves and recent others highlight a question facing the $10 billion per year business. Do long-established REIT sponsors and executives want or even desire to keep up with the pace of change in an industry that securities regulators are watching with intense interest?
Simply put: Who will be the next REIT sponsor or executive to throw in the towel because the rules of the REIT game are changing?
The Wells moniker was erased from Wells Real Estate Investment Trust II, which said on Friday it had changed its name to the far less brand-friendly Columbia Property Trust Inc. The move comes with little surprise as legendary REIT sponsor Leo Wells resigned as the REIT's chairman at the end of last year.
Mr. Wells then said he had given up on the nontraded REIT business because uncertainty created by regulators had forced him to the sidelines.
Last Thursday, Hines said one of its key real estate managers, Charles Hazen, was leaving the firm's investment management group. According to Hines' website, Mr. Hazen is president and CEO of Hines U.S. Office Core Fund, Hines REIT, and Hines Global REIT. He has raised more than $6 billion from investors and is being replaced by Hines veteran Sherri Schugart.
Mr. Hazen chose to leave Hines “to invest personally on a smaller scale,” according to a company news release. Hines is scheduled to discuss the change tomorrow with broker-dealers on a conference call. Spokeswoman Kim Jagger declined to comment about that pending conversation.
Finally, nontraded REIT TNP Strategic Retail Trust Inc., launched in 2009 by tenant-in-common king Tony “The Truth” Thompson, asked the Securities and Exchange Commission to kill its follow-on offering of $900 million. That's the only sensible course of action as the REIT's assets are reportedly being sold and parent company Thompson National Properties has defaulted on a series of private note programs it sold to investors to fund its operations.
Many in the nontraded REIT industry have resisted changes in fees and disclosures. Many have pined for the days before the credit crisis — the days of easy sales and the notion that real estate values were boundless.
It's obvious, however, that the industry is changing and those easy days are over. Of course, it's impossible to lump together the motivation of all sponsors and executives. Managers such as Mr. Hazen, for example, leave the business for any number of reasons, both personal and professional.
But sponsors and executives of nontraded REITs are currently facing two choices. They can accept the changes and help registered representatives and investment advisers do a better job for their clients. Or, like some have recently decided, they can get out of the business and find another line of work.
