Commercial Real Estate Direct Staff Report
Real estate syndications are getting another push into the retail investor sector. This time through publicly listed REITs.
A new company, Etre Asset Management, is launching what would be the first of a series of REITs, each of which would invest in an individual property. ETRE REIT Series A-1 would buy 1201 Connecticut Ave. NW, a 173,688-square-foot office building in Washington, D.C., from Mack-Cali Realty Corp.
Etre Asset is an affiliate of Etre Financial Inc., which was launched in 2012 to facilitate the trading of shares in individual properties, and was co-founded by Paul Frischer, who previously was executive managing director of research and real estate strategies at Newmark Grubb Knight Frank. He previously had co-founded the Rexx Index in 2006, which relied on rental data to determine property values.
The initial REIT is aiming to raise $53 million through an offering underwritten by Sandler O'Neill & Partners. And it has lined up a term sheet for a $46 million mortgage from Morgan Stanley. The loan would require only interest payments for its 10-year term and pay a coupon of 4.35 percent.
Mack-Cali had purchased the building at 1201 Connecticut in 1999 for $32.2 million. Under its letter-of-intent to buy the property, Etre Asset has 90 days to exclusively negotiate terms of the property's acquisition.
The property generated $3.7 million of net operating income last year, when it was 86.7 percent occupied. Its major tenants are Qorvis Communications, in 17.9 percent of its total space, the Leo A. Daly architectural firm, the Radio Free Europe/Radio Liberty broadcasting organization and Brooks Brothers.
Etre Asset's plan is another step in bringing property syndications, which previously were the purview of accredited investors, to the retail sector. Because its REITs will be listed on Nasdaq, they'll be available for any investors to buy. Investors in those shares effectively will be buying interests in individual properties.
Its similar to what a number of entrepreneurs have done in the crowdfunding space. But instead of selling shares in listed REITs, those entrepreneurs are selling limited partnership interests in individual properties.
While a number of investment vehicles that have REIT status and own only one property exist, none are publicly registered. That's according to the National Association of REITs, which tracks the publicly-traded market, and Robert A. Stanger & Co., which monitors the non-traded REIT sector.
Etre Asset will be paid fees for handling asset management, acquisitions and dispositions and other business functions for the REITs it launches. A-1 is slated to pay it administration fees that include $50,000 per quarter and 2 percent of its quarterly net operating income; 1 percent of its total capitalization during the month immediately before its sells an asset, and a one-time fee of $800,000 upon closing its initial offering of shares.
The REIT will also pay a property management fee. Those services will be handled by Jones Lang LaSalle.
Frischer's co-founder in Etre Financial is Jesse Stein, who previously was an acquisitions executive for United Realty Partners, a New York investment manager and sponsor of non-traded REIT United Realty Trust.
Among Etre Asset's directors are John Gregorits, who recently retired as head of the specialized funds group at Prudential Real Estate Investors; Scott Panzer, who is vice chairman of Jones Lang LaSalle and a former executive at Newmark Knight Frank, and Jay Anderson, who is chief operating officer of Feil Organization, a New York developer and investor.
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