FINRA charges broker-dealer in connection with sales of Apple REITs

The Apple REITs have long been an enigma in the non-traded REIT industry – a sponsor that has consistently raised substantial capital apparently through a single broker-dealer, David Lerner & Associates, Inc. (DLA).  Now FINRA has charged DLA with soliciting investors to purchase shares in Apple REIT Ten without conducting a reasonable investigation to determine whether it was suitable for investors, and with providing misleading information on its website regarding Apple REIT Ten distributions. 

Clarion Partners Property Trust declared effective by SEC

The much anticipated non-traded REIT offering of shares in Clarion Partners Property Trust was declared effective by the SEC on May 16, 2011.

Dividend Coverage Analysis: Dividends Paid vs. Dividends Declared

Dividend Paid vs. Dividends Declared – does it matter?  You bet – – particularly during the ramp up period of non-traded REIT fundraising. 

Non-traded REIT valuations – transparency or opacity?

A number of non-traded REITs recently reported estimated share values in their annual reports on Form 10-K, and a perusal of the related disclosure leaves us wondering how the values were computed. 

BDCs catching on in the non-traded investment space

Until recently, the market for business development companies, or BDCs, had been limited to entities listed on a national exchange.  Currently, there are at least 22 publicly-traded BDCs listed on exchanges, with assets totaling nearly $18.0 billion.  In January 2009, FS Investment Corporation (“FSIC”), a BDC sub-advised by a subsidiary of The Blackstone Group, commenced operations as the first BDC offering non-traded shares (i.e. shares not listed on an exchange). 

GIPS performance standards for REITs?

Because of the general lack of regular asset or portfolio valuations (and the mystery surrounding many of those that have been completed) it is very difficult to analyze non-traded REIT performance on programs that have not “gone full cycle.”  Although the SEC’s Guide 5 provides some basic guidelines for performance disclosure, because of the lack of any updating or additional formal guidance from the SEC, the usefulness of Guide 5 prior performance disclosure is limited – often the resulting disclosure is a mishmash of financial data without any helpful summary information.

An interesting contrast to the fog that surrounds non-traded REIT performance is the real estate performance disclosures endorsed by the CFA Institute through its voluntary GIPS (Global Investment Performance Standards) initiative. See 2010 standards here.

Reef’s new public offering

On March 16, 2011, Reef Oil & Gas Partners, L.P. filed a registration statement with the SEC for a public offering of up to $225.0 million in a series of up to three limited partnerships to be formed to drill and own interests in oil and natural gas properties in the United States. Reef indicated that the primary purposes of the partnerships will be to generate revenue from the production of oil and gas, distribute cash to the partners, and provide the tax benefits that are available to those that drill for and produce oil and natural gas. The operator of each partnership’s prospects will be either an unrelated third party or Reef Exploration, L.P., an affiliate of Reef.

It appears that Reef’s last public offering of securities was Reef Global Energy IX, LP which closed in July 2007. To our knowledge, there are currently no other registered offerings for oil or gas direct participation programs.

Steadfast change in CFO – update

This post updates our previous post regarding the resignation of Steadfast’s CFO, James Kasim.  Steadfast subsequently reported that the Audit Committee of its board of directors initiated an investigation in response to announcements related to Mr. Kasim.  According to the report, the Audit Committee engaged an outside law firm and a “large, national independent accounting and auditing firm” to assist in the investigation.  At the direction of the Audit Committee, the procedures of the investigation included conducting interviews, analyzing certain transactions and assessing the related internal controls that were in place during Mr. Kasim’s tenure as CFO.  This investigation was completed on April 7, 2011, and the Audit Committee was advised that nothing was discovered that would adversely impact the integrity of Steadfast’s financial statements.  The Audit Committee discussed the results of the investigation with Ernst & Young LLP whose report on its financial statements for the year ended December 31, 2010 is included in Steadfast’s prospectus supplement No. 8 and Form 10-K.

Empire re-emerges as Independence

Independence Realty Trust, Inc. filed a Form S-11 on April 8 relating to an offering of up to $1 billion of common stock.  Independence’s name was changed from Empire American Realty Trust, Inc. following the acquisition of its advisor and dealer manager by RAIT Financial Trust, a publicly traded REIT (NYSE:RAS), earlier this year.  As you may recall, Empire previously registered an offering that was declared effective in 2010, but never broke escrow.   Martel Day, formerly executive vice president of Inland Securities Corporation, serves as executive vice president of Independence and president of its dealer manager.

Independence’s investment strategy is to acquire a diverse portfolio of multifamily properties located in the United States.  The REIT expects to target primarily core and stabilized multifamily properties that are well leased and produce predictable income, but will also consider properties that require limited capital expenditures, have existing cash flow and offer opportunities for enhanced returns.  It will be seeded with six properties being contributed by affiliates of the sponsor in exchange for operating partnership units and the assumption of debt.

Skin in the game at Grubb & Ellis Healthcare REIT II

Grubb & Ellis Healthcare REIT II, Inc. announced that Jeff Hanson, its Chairman and CEO, and Danny Prosky, its President and COO, have entered into executive stock purchase plans under which they will invest 100% and 50%, respectively, of their cash compensation (which they earn as employees of Grubb & Ellis Co.) in shares of common stock of Grubb & Ellis Healthcare REIT II.  The plan is irrevocable and will remain in effect until the earlier of Grubb & Ellis Healthcare REIT II closing its equity raise or the end of 2011.  The purchase price will be $9.00 per share, which is equal to the $10.00 per share public offering price less commissions and the dealer manager fee.  According the announcement, both Prosky and Hanson intend to renew the plans on an annual basis beginning January 1, 2012.