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Friday, 16 February 2018

Oaktree Capital is Latest Institutional Investor to Launch Non-Traded REIT

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Commercial Real Estate Direct Staff Report

Oaktree Capital Management has launched a non-traded REIT, joining other institutional investors such as Blackstone Group, Starwood Capital Group and TH Real Estate in targeting retail investors.

The Los Angeles company, which has about $100 billion in assets under management, has formed Oaktree Real Estate Income Trust Inc., through which it will invest in income-producing properties, real estate debt and real estate-related securities.

The REIT mostly will pursue office, apartment and industrial properties, but it may also consider investments in retail and hotel properties. It expects to invest in the country's 50 top markets, excluding the so-called gateway markets of Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C., where it says properties have become too expensive.

Up to 35 percent of the REIT's investments could involve mortgages - senior or subordinate loans - or real estate-related securities, including CMBS and debt against real estate companies.

Oaktree's real estate group has managed 16 funds and separate accounts and five co-investment vehicles since its inception in 1995. Over the past 10 years, it has invested $4 billion in 110 property transactions and $4.7 billion in debt instruments, including CMBS.

Oaktree Real Estate Income Trust will have a perpetual life, meaning it's not planning to ever list its shares or liquidate its holdings. Investors can request to redeem shares on a monthly basis, but the REIT will not be obligated to buy them.

John Brady, the head of Oaktree's real estate group, is the REIT's chief executive. Oaktree managing directors Derek Smith and Manish Desai are the REIT's chief operating officer and president, respectively.

Oaktree is the latest institutional investment manager to start a non-traded REIT. Blackstone, in particular, has been successful raising capital on behalf of its Blackstone Real Estate Income Trust Inc., a non-traded REIT that was launched in August 2016 and has become the most active player in the sector. It had raised $1.25 billion through the third quarter of last year, about $900 million more than any other non-traded REIT during that period.

As of the end of last year, it owned 17,171 apartment units, 1,356 hotel rooms, 31 million square feet of industrial space and 403,000 sf of retail space. It also has agreed to pay $1.8 billion for a portfolio of 146 industrial properties with 21.7 million sf.

Starwood Capital launched its non-traded REIT, Starwood Real Estate Income Trust Inc., in October. And TH Real Estate, an affiliate of Nuveen, the investment management arm of TIAA, formed its non-traded REIT, Nuveen Global Cities REIT Inc., in December. Other institutional investors with non-traded REITs include CIM Group, which bought VEREIT Inc.'s Cole Capital non-traded REIT business in November; LaSalle Investment Management, which in 2011 converted its Excelsior LaSalle Property Fund Inc. into a non-traded REIT, JLL Income Property Trust, and Rreef America, an affiliate of Deutsche Asset Management, which in 2012 launched Rreef Property Trust.

Oaktree, in a regulatory filing, noted that Oaktree Real Estate Income Trust's strategy overlaps with two of its equity funds, one of which is actively investing and one that is expected to start raising capital early this year. It also might overlap with an Oaktree fund that is looking to raise up to $2 billion that would be invested in debt.

Oaktree plans to allocate investments among the REIT and its funds on a rotational basis.

The REIT noted that it would primarily invest in core-plus properties, which it defines as assets that generate meaningful current income, but whose value could be improved through renovations.

It does not expect to buy properties in the six largest U.S. markets because of their lower capitalization rates and higher prices compared with other major cities. It will target properties that it could buy for between $20 million and $100 million, and will hold its investments for seven to 10 years. It could leverage its investments by up to 60 percent.

The REIT is offering four classes of stock. Two would sell for $10.35 apiece, be available through broker-dealers and transaction-based accounts, and be subject to an upfront selling commission of up to 3.5 percent and a dealer-manager fee of 0.5 percent. They also would face a 0.85 percent annual stockholder servicing fee.

Another class, offered through fee-based accounts, would be sold for $10.05 each and would carry a 0.5 percent dealer-management fee, as well as a 25 basis point annual stockholder servicing fee. The fourth would be available to institutional investors and the REIT's executives and immediate family members. They will sell for $10 apiece and have no fees, but would require a $1 million minimum investment.

Comments? E-mail Tim Casey or call him at (267) 397-3347.



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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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