Bringing more transparency to commercial real estate investing

Transparency. Accountability. Accessibility. These are all traits commercial real estate investors want, and they are qualities the best sponsors consistently display.

When investors and sponsors don’t see eye-to-eye on these crucial elements, it can lead to trouble. That lesson has come front-and-center here in North Carolina.

Pittenger Land Investments, the land investment firm founded by U.S. Congressman Robert Pittenger (R-N.C.), recently was the subject of a Charlotte Observer article that questioned whether his family’s company properly disclosed markups on land it purchased and then sold to investors who hoped to eventually flip the assets to developers. Some investors told the paper they didn’t know Pittenger sold them stakes at marked-up prices. The FBI is reportedly investigating the firm, though there have been no official allegations of any wrongdoing.

Pittenger Land Investments told the newspaper it has always fully complied with all rules and regulations. It also appears the firm disclosed the necessary information in documents sent to investors.

Why then are some investors still unhappy? I believe technology has changed our expectations. Investors now demand more information, with more context and at a faster pace than ever before. Conducting investor relations the same way it has always been done is no longer enough.

Granted, dust-ups such as the Pittenger dispute boil down to how much information was disclosed properly and how much relevant information was not shared. In Pittenger’s defense, many investors only hear (or read) what they want to hear. However, the debate serves as an important reminder that exceeding expectations with investor communications is paramount.

At our portfolio company Investor Management Services, we’re seeing more and more how important this issue can be. Our clients have told us the most valuable items we can provide are the tools to attract, engage and manage their investors in the 21st century.

Years ago, receiving a paper credit card statement in the mail was an appropriate and acceptable method of staying up-to-date on account balances. Keeping an investment prospectus in a filing cabinet for future reference was standard practice.

Today, any card issuer that only communicates with paper mailings won’t stand a chance in the marketplace. Very few people believe paper filings in a storage room are the best way to access investment records.

Customers now expect and demand real-time updates on their mobile phones. Transactions are documented instantaneously. Legal disclosures and investment details should be available from almost anywhere with a user name and password.

For commercial real estate professionals, this is a game changer, and frankly, we have been slow to adapt. Too often, paper statements with arcane language are mailed to investors with little other communication. That doesn’t cut it anymore. Investors want their real estate holdings and relationships to be as accessible and transparent as their online banking and brokerage accounts. They want all the available information at their fingertips, not just the required minimum mailed periodically in a legal document.

This shift is driving growth at our company. We have added new clients weekly, even in the traditionally slow summer months, and we’re investing in technology updates to deliver the tools sponsors need to provide a top-shelf experience for their investors.

IMS clients are sharing documents and disclosures with online investor portals, granting their investors access anytime and anywhere. Investors are monitoring investment dashboards to track performance. All parties can process transactions with the click of a mouse or the tap of a touchscreen.

In the modern economy, “We didn’t know,” is no longer a good excuse. The tools to manage investor-sponsor relationships are delivering transparency, accountability and accessibility we all should enjoy.

Robert J. Finlay is CEO of QuietStream Financial.

By Robert J. Finlay | Chief Executive Officer | QuietStream Financial


Market Report: ‘Falling knife’ or ‘buy on fear’?

It’s hard to even look at the numbers right now. 

After a sharp slide to end last week, investors woke to more disturbing news Monday as international market declines sent the Dow Jones Industrials into a 1,000-point tailspin to start the day. Even a big late morning rebound eventually gave way to a sell-off later in the day.

So, let’s stay away from the absolute and instead, focus on the differential. Despite the massive rally in the Treasury market, refinance rates moved about 10 basis points lower. In other words, spread widening significantly muted the Treasury run. Typically in a bearish environment, credit becomes tight and financing more difficult. However, the numbers are showing a bottom to the correction.

Although credit products blew through support levels, the quick bounce on Monday indicates a probably near term correction and potentially continued strength in the CRE market.

NikkiBy Nikki Vasco | Chief Investment Officer | FullCapitalStack

Bankruptcies, weak sales not slowing retailer growth

The retail industry may be tussling with some high-profile bankruptcies and weak sales growth, but demand for retail properties remains strong, according to a recent report from RBC Capital Markets.

Analyst Rich Moore’s research shows retailers have increased plans to expand and open new stores over the next 24 months compared to the outlook earlier this year. Planned store openings over the next 24 months have increased by 3.8 percent year-to-date, based on RBC’s retailer database of nearly 80,000 retailers. Those growth plans are in spite of sales growth that checked in at a meager 0.6 percent for the month of June.

“Media headlines have recently painted a difficult picture for the retail sector amid a backdrop of sputtering retail sales growth, struggling retailers, and high-profile bankruptcies. Despite the apparent headwinds, bad debt expense at the REITs remains below the historical norms, and strong retailer demand continues to drive occupancy and rental gains,” Moore says in his National Retail Demand Monthly report.

The “increasingly competitive” retail environment as shoppers have more choices that ever, including online stores, is expected to fuel more bankruptcies in the months ahead, RBC says.

In July, Anna’s Linens, a specialty houseware retailer, and A&P, the supermarket chain, filed for protection. RBC says retailers operate a combined 564 stores nationwide with 268 Anna’s Linens locations and 296 A&P locations.

“We expect that the increasingly competitive retail environment will lead to further bankruptcies which is likely to push bad debt expense back to historical norms,” Moore writes in his report. “Although bankruptcies may be disruptive in the short run, high quality retail space is limited, and retailer demand for vacancies due to bankruptcy appears solid as evidenced by the climbing number of planned store openings.”

Retailers in the crafts and supplies category, activewear, childcare, and salons showed the largest positive changes in planned store openings year-to-date through the first half of the year. Meanwhile, toys and hobby stores, laundromats, bookstores, and car care service centers slowed their growth plans the most, RBC says.

Top 30 Retailers 24-Month Growth Projections (as percentage of existing stores)

  1. Children’s Orchard (200 stores, 200% growth rate)
  2. Five Guys Famous Burgers and Fries (1,200, 160%)
  3. Penn Station – East Coast Subs (300 stores, 146%)
  4. Bed Bath & Beyond (140, 140%)
  5. Smashburger (200, 133%)
  6. Complete Nutrition (200, 129%)
  7. Subway (5,000, 122%)
  8. Quality Oil Company (145, 121%)
  9. Fresh and Easy (200, 114%)
  10. Aveda (200, 100%)
  11. Urban Outfitters (120, 100%)
  12. Menchie’s Frozen Yogurt (450, 90%)
  13. Robeks Fruit Smoothies & Healthy Eats (100, 83%)
  14. Golden Krust Caribbean Bakery & Grill (100, 83%)
  15. Villari’s Family Centers (400, 80%)
  16. Famous Famiglia (100, 80%)
  17. Sandella’s Flatbread Café (100, 80%)
  18. Crazy8 (160, 73%)
  19. Wing Zone (70, 70%)
  20. Mini Melts (200, 67%)
  21. Dunkin’ Brands Combo Stores (200, 64%)
  22. Torrid (90, 62%)
  23. Lee Nails & Spa (90, 60%)
  24. Charming Charlie (120, 60%)
  25. Red Mango (120, 57%)
  26. Kool Smiles (60, 57%)
  27. Five Below (110, 57%)
  28. lululemon athletica (80, 56%)
  29. Crocs (100, 55%)
  30. Francesca’s Collections (152, 54%)

Source: RBC Capital Markets July 2015 National Retailer Demand Monthly

Adam O'DanielBy Adam O’Daniel | Editor | QuietStream Insights


Market Report: On Track For Rate Hikes?

Expectations this week continue to point toward a September interest rate increase, supported by Friday’s jobs report.

The Labor Department said Friday that the U.S. economy created 215,000 net new jobs in July with a nationwide unemployment rate unchanged at 5.3%. The numbers illustrate a stable job market, no longer adding jobs at last year’s more rapid pace, but still churning along at a decent pace.

Is this enough to justify what is now a widely held belief that the Fed will hike rates in September?

Depends on who you ask. Many believe the threat of asset price bubbles and inflation make it an ideal time to begin rate increases, even if job growth is merely adequate.

“A similar report for August … would likely be enough to seal the deal for a mid-September rate hike,” Gus Faucher, senior economist at PNC Financial Services Group, told the Los Angeles Times.

However, some objectors continue to point to slow wage growth and global concerns as reasons to postpone rate increases.

“This morning’s report was hardly suggestive of improvement,” Lindsey Piegza, chief economist at Stifel Fixed Income, told NPR on Friday. “Status quo is hardly a step in the right direction, making it difficult for the Fed to justify a near-term rate increase.”

Still, consensus believes Friday’s jobs report supported the expected September rate hike. 

Here’s one more point to keep in mind as rate hikes are contemplated: When rate hikes begin, they have historically continued quickly. In the last Fed tightening cycle (2004-2006), the Fed raised rates 200 basis points in the first 12 months of the cycle and 425 basis points over 25 months.

Will refinance rates be 200 basis points higher at this time next year?

NikkiBy Nikki Vasco | Chief Investment Officer | FullCapitalStack

Guess Who Just Plowed $3 Billion Into Farmland?

While retail investors hold their hats watching markets swing back and forth this summer, the world’s deepest pockets are seeding a new fund that will buy stakes in a rather boring asset-class: Farmland.

TIAA-CREF, a multibillion-dollar investment manager, this week announced it has exceeded its $2.5 billion goal and raised $3 billion for a new agriculture fund. TIAA-CREF Global Agriculture II LLC is the asset manager’s second global agriculture investment partnership. The first fund, closed in 2012, raised about $2 billion.

The new fund will invest in “high-quality farmland assets across numerous geographies spanning North America, South America and Australia,” TIAA-CREF says. The pool has capital commitments from U.S. and international institutional investors, with numerous return commitments from the firm’s first farmland investment. TCGA II has 20 investors, including AP2, Cummins UK Pension Plan Trustee Ltd., Environment Agency Pension Fund, Greater Manchester Pension Fund, New Mexico State Investment Council and the TIAA general account.

“With its low correlation to traditional asset classes like stocks and bonds, farmland offers excellent portfolio diversification benefits for investors and a hedge against inflation,” says Jose Minaya, senior managing director and Head of Private Markets Asset Management at TIAA-CREF Asset Management.

“The macroeconomic fundamentals for investing in farmland are very positive and we view the launch of this new strategy as a testament to the ongoing potential and attractiveness of this asset class.”

The oversubscribed fund underscores a trend that has become clear in recent months. Wealthy investors are looking for more alternative assets to offset the volatility of the stock and bond markets.

“Smart money is investing in hard assets,” FullCapitalStack Chief Investment Officer Nikki Vasco says. “Whether its farmland or another form of real estate, many investors are looking for asset classes that can hedge against inflation and shield some of the market volatility we see today.”

TIAA-CREF, which has $500 billion in assets under management from top institutional investors worldwide, currently manages approximately $8 billion in farmland assets and commitments around the world. It has been investing in agriculture since 2007.

A recent Wall Street Journal report on farmland investing pointed to hopes among investors — both institutional and individuals — that the asset class will gain value as food consumption increases amid rising global populations. In addition, farmland often generates income from rent paid by farmers.

Several firms have also recently created REITs for retail investors to own pieces of farmland investments, including Farmland Partners, which went public last year.

It is obvious that some institutional investors believe the benefits of owning hard assets outweighs the risks, despite the recent appreciation and lack of liquidity.

“Farmland is the tortoise in a tortoise and hare race,” Paul Pittman, chief executive of Farmland Partners, told the Wall Street Journal.

Adam O'DanielBy Adam O’Daniel | Editor | QuietStream Financial Insights


Market Report: Volatility Is Here To Stay

How many hits does it take to become unaffected by the blow? 

The global markets calmed a bit last week. However, that didn’t continue as this week opened with the Greek stock market plunging after five weeks of being closed. Additionally, commodities were hit again after China announced a slide in manufacturing. 

And, of course, U.S. equities opened lower on global concerns despite the strength in personal spending.

This week is sure to be a repeat of the roller coaster ride with everyone waiting for the latest jobs numbers due to be released on Tuesday.

So, to address my initial question: Can we absorb so many hits that we become unaffected by the blow? Never.  But an investing world dominated by the global economy, real-time information and electronic transactions is here to stay.  Volatility is becoming the norm.

Take a picture of rates and the current lending environment. Tomorrow will be different.

Nikki VascoBy Nikki Vasco | Chief Investment Officer | FullCapitalStack