Individual Investor Makes Public Bid for Shares of 3 Non-Traded REITs

REITCO LLC (REITCO) announced today its interest to purchase shares of non-traded REITs Inland American Real Estate Trust (Inland American), Corporate Property Associates 16 (CPA 16) and TIER REIT, Inc. (Tier).

Inland American has made it known that liquidity options are being considered and could come in a series of liquidity events rather than one complete transaction.

In the release, REITCO commented “Inland American has stated they intend to consider liquidation events but have not stated anything definitively and it appears that final liquidity is still several years away.” Because of this, they are now offering “85% of the sponsor’s announced net asset value of $6.93.”

Inland American had not replied to an inquiry for comments at the time this article was published.

CPA 16, advised by W.P.Carey Inc. (W.P. Carey), has liquidity plans of its own. Its board of directors along with that of W.P. Carey’s, has approved a merger in which CPA 16 stockholders will receive $11.25 per share in the form of W.P. Carey common stock (NYSE: WPC). A communication detailing the timeline of events and anticipated closing of January 31, 2014 was filed today with the SEC. Financial Advisors with clients invested in CPA 16 should have received this communication along with a list of each client eligible to vote on the merger, today.

REITCO’s offer to CPA 16 shareholders is “very close to the original offering price of $10.00.” When asked about the offer, Larry Cohen of REITCO responded in an email “CPA 16 is planning a liquidation event but it is subject to a vote and the pricing is subject to the market variations of WPC stock.”

A spokesperson for CPA 16 declined to comment on the REITCO offer.

TIER REIT, now an internally managed organization, was formerly Behringer Harvard REIT I, Inc. REITCO’s offer is for $1.80 per share.

A spokesperson for TIER REIT declined to comment on the REITCO offer.

Based out of Scottsdale, Arizona, REITCO is a one owner enterprise, owned and operated by Lawrence (Larry) Cohen. Larry describes REITCO as himself, an individual investor buying interests in non-traded REITs and other limited partnerships from investors seeking liquidity.

To see the original press release, click here.

KBS REIT III Acquires a San Francisco Office Tower

KBS Real Estate Investment Trust III (KBS REIT III) recently announced the acquisition of 201 Spear Street in San Francisco’s South Financial District. The property is a Class-A office tower and it was purchased for $121 million in addition to closing costs from its previous owner, Massachusetts Mutual Life Insurance Company.


At the time of purchase, the 18-story building was 82% occupied by 19 tenants, with Verizon and CoreLogic being among the occupants. It is also in a burgeoning area, being near the new Transbay Terminal transportation and housing project called Market Street.

KBS Senior Vice President and Asset Manager Brent Carroll commented, “San Francisco’s South Financial District is considered one of the nation’s top-performing office markets, and KBS REIT III is pleased to have a presence here.” He continued, “201 Spear Street is near much of what Downtown San Francisco has to offer, making it a great addition to this REIT’s nationwide portfolio.”

Built in 1984, 201 Spear Street turns 30 next year and according to filings on the purchase, will not need significant renovations or improvements. Currently, aggregate effective base rents net of rental abatements amounts to $8.4 million and the weighted average remaining lease term is 3 years, approximately.

As of September 30, 2013, KBS REIT III had sold over 53 million shares of common stock for gross offering proceeds of $531.6 million including $13.9 million under its dividend reinvestment plan. The company has extended the closing date of its primary initial public offering until the earlier of the sale of all 200,000,000 shares, April 24, 2014, or the date of the registration statement relating to the company’s proposed follow-on public offering is declared effective by the SEC. KBS REIT III is a public, non-traded REIT that focuses on creating a diverse portfolio through a strategy of investing in equity and debt.

For more KBS related news, visit their Directory Listing here.

What Advisors Want: Natixis Report Says More Alternative Investment Education

The world of financial advising is vast and can be difficult to navigate, whatever one’s area of expertise. Despite the rigorous training that goes into financial advisory positions, many still feel like education is lacking in their field when it comes to alternative investments. In a recent study conducted by Natixis 75% of financial advisors admitted a need for more education.

In the realm of alternative investments, the report by Natixis revealed that advisors feel their clients have little understanding of them. While this is in part due to the complexity of the industry, not all advisors themselves have a solid understanding of alternative investments. With the onus of educating clients falling to financial advisors, knowledge is a key factor in the success of both parties.

While some regulations are already in place, it is not necessarily standardized. FINRA requires broker-dealers to establish a formal training program for their registered persons to keep them up to date on products and job-related subjects. however the type of education and topics covered may vary by firm. There is alternative investment knowledge available to those who seek it. AI Insight offers its broker-dealer members tools to help provide their financial advisors with regulatory-compliant education and training specifically on alternative investments. By improving education on the subject, broker-dealers can attract top advisors who can better serve their clients.

For wholesalers, the depth and quality of resources also varies by firm. Like sponsors, wholesalers can increase their knowledge of alternative investments by accessing white papers and webinars that are offered by various trade associations. Since wholesalers provide a lot of information on the products they distribute, it is important that they be well educated and educate advisors in order to forge lasting relationships and establish trust.

REISA provides training through webinars and regional meetings for members. For those wishing to increase their knowledge of direct participation programs, it also offers a Direct Participation Professional designation that can be obtained through completing courses and passing examination.

IPA has a suite of E-learning courses designed for advisors who are new to Direct Investments and a proficiency certification series. IPA also offers an advanced education series, which covers how to explain the benefits of direct investments to clients, among other topics.

FSI offers its members access to topical white papers through its online resource center along with industry updates and marketing materials.

In a nutshell, financial advisors all over the globe are feeling insecure about their level of education, specifically when it comes to using alternative investments. There are a number of trusted educational resources on the market that have the potential to offset this insecurity, not only for those interested in alternative investments, but for financial advisors at large and in all of their capacities.

To see the full Natixis report, click here.

Integrity and Transparency

Integrity and Transparency are popular terms in financial services today and have been for some time. Merriam-Webster defines Integrity as the quality of being honest and fair. Being transparent is to be honest, open, easy to understand, and not secretive. Financial Advisors are expected to have high standards of integrity while being transparent and they appreciate the same of alternative investment sponsors according to a recent survey conducted by Cogent Research on behalf of Franklin Square Capital Partners (FSCP).

The results, based on usable responses from 268 independent financial advisors and registered investment advisors, indicate that 92% felt that integrity and transparency matter most when selecting a sponsor. Investment performance was the 2nd most important criterion according to 91% of the respondents and low correlation (82%) rounds out the top 3. Competitive pricing and length of track record are also important according to 74% and 72% of the advisors. Interestingly, liquidity came in near the bottom of the list with only 38% of respondents indicating this to be a factor.

In a statement, Ron Carson, CEO of Carson Wealth Management Group, commented, “We, as advisors, should seek out firms whose money management approach produces solid results while truly embracing transparency and responsible business practices.”

Alternative Investment strategies are many so the survey was sure to determine which type these pollster are using. Alternative Mutual Funds are most widely used by the respondents (89%) while REITS and ETFS round out the top three. It is unclear if the use of REITs includes both non-traded and traded. Limited Partnerships (LPs) and BDCs are used by 42% and 39% of this group.

So out of 268 respondents, 104 use BDCs and 112 use LPs which is a small sampling, however, it is most likely on trend with the sentiment of the financial advisor mass.

Collectively, integrity and transparency imply a sense of fairness, honesty, ease of understanding, as well as being non secretive.

How do sponsors of direct investments achieve this? By offering investments that are easy to understand, managing them prudently, and sharing information, good and bad, in a timely manner. Sharing starts with a third party due diligence review and report provided to broker dealers (BD) for evaluation. During the BD assessment, answering additional questions and being an open book for due diligence committees. Then, on-going communication as it relates to the investment activities.

That covers things from a higher level, but what about the boots on the street, the wholesalers? Sponsors need to educate and train their wholesalers to answer financial advisors’ questions. Education and training are much like practice and preseason workouts are for professional athletes; they are constant and must happen in order to put your best “boots” forward.

Advisors agree.

The FSCP / Cogent Research survey indicated that advisors prefer to learn from wholesalers when it comes to alternative investment products. More than half of the 268 polled believe that wholesalers are best at educating advisors and keeping them informed of changes to current solutions.

Nice work sponsors.

Advisors, which sponsors have the most integrity and transparency? Share your thoughts and experiences with Dave at The DI Wire by emailing him at

Current Openings – Updated August 28, 2014

Currently there are several internal positions available, an external, key accounts and asset management opportunity. Franklin Square Capital Partners has five openings.

Job Company Location Date
External JC Trident Southeast 8/26
Internal Cole / ARCP Phoenix, AZ 8/25
Product Analyst Franklin Square Philadelphia 8/19
Business Dev Inland Oak Brook, IL 8/4
Asset Management Dividend Capital Denver 8/1
Internal KBS Newport Beach, CA 8/1
Internal Franklin Square Philly or Orlando 8/1
Sales Associate Franklin Square Philly or Orlando 8/1
Product Strat Analyst Franklin Square Philadelphia 8/1
Client Relations Spec. Franklin Square Orlando 8/1
Key Accounts JC Trident Any 6/17

Is a REIT a DPP?

Limited Partnerships, Direct Participation Programs, Direct Investments, and Alternative Investments are some terms used interchangeably to describe certain types of investments. Only one of these terms is specifically defined by FINRA. If you took the Series 22 exam you probably recognize Direct Participation Programs (DPPs) as the title of your study materials.

FINRA Rule 2310 defines DPPs as an investment program that provides for flow-through tax consequences. An investor in a DPP owns a share of a company or entity.

Entities with flow-through tax structure are not subject to corporate income taxes. The partners or shareholders pay individual income tax on their allocated share of profits and can deduct business losses against other sources of income.

LLCs, LPs and S-Corporations are the most common entity types for DPPs with a separate entity acting as manager of the offering. Investors are often limited partners with limited liability, however, sometimes may elect to invest as a general partner to profit from certain tax benefits.

The most common DPP investments include: oil and gas programs, real estate programs (excluding REITs), leasing programs, agricultural programs, and mineral programs. Investors in these programs directly own a proportionate share of the actual asset, thus the term Direct Investments.

Not all direct investments are direct participation programs. Why? FINRA has excluded certain entities from the definition of DPPs such as Real Estate Investment Trusts (REITs). REITs are similar to DPPs in that the entity may avoid taxation by meeting certain requirements pursuant to Internal Revenue Code 856. Since investors directly own or have an interest in an asset, REITs are considered Direct Investments just like DPPs.

The DI Wire reports the news and opinions on Direct Investments such as DPPs and REITs.

Combating the Direct Sale

No one enjoys losing assets or the attention of a client. Wholesalers want all of an advisor’s direct investment business. Financial Advisors want to manage 100% of each client’s assets. However, we know this is far from reality. Sometimes, potential or existing assets may be lost due to an unrecognized danger; the Direct Sale!

Sponsors of direct investments that solicit high net worth individuals directly can cause resistance for the many gears of your business.

These investments are typically private, limiting the information available to your clients. The sales folks employed by these firms are many times, very persuasive. Some may say they are passionate about the investment’s potential.

Although, there are many reputable firms that sponsor direct investments and sell direct to investors, some delivering as promised, most have one goal in mind, raise capital to fund their activities. They are not evaluating an investor’s portfolio and determining an appropriate asset allocation. They are not considering an investor’s goals and understanding of illiquid investments.

As financial advisors, you take the time to get to know your clients. You understand their needs, their tolerance for risk, their investment knowledge, and their goals. You depend upon wholesalers to educate you on investment offerings, past, present, and future. Broker Dealers work to ensure that only reputable direct investment sponsors and their offerings are made available to your clients. Collectively, you work with your client’s best interest in mind.

You have a client that was solicited directly and has interest, now what?

A simple suggestion will do.

Mr. and Mrs. Client, when you and I discuss an investment opportunity, it is only after a series of other folks have conducted due diligence. First, a Third Party Due Diligence firm reviews the offering and provides their findings to my broker dealer. At that time, my B/D, will conduct its own internal review of the manager (sponsor) and the offering. If my broker dealer then elects to sign a selling agreement with the sponsor, then I begin my due diligence. If the sponsor and investment pass my tests, then and only then, I determine which of my clients would be appropriate for such an offering.