LPL Reports $1.1 Trillion in Advisory and Brokerage Assets in 2Q21

LPL Financial Holdings Inc. (Nasdaq: LPLA), the parent of LPL Financial LLC – the nation’s largest independent broker-dealer, reported that total advisory and brokerage assets increased 46 percent year-over-year to $1.1 trillion, according to its second quarter 2021 results. This represents an increase of 16 percent compared to $958.3 billion in first quarter 2021.

Advisory assets increased 54 percent year-over-year to $578 billion. As a percentage of total assets, advisory asset increased to 51.9 percent, up from 49.3 percent a year ago. Brokerage assets increased 38 percent year-over-year to $535 billion.

Advisor count was 19,114, up 1,442 from last quarter and 2,141 year-over-year. This included the addition of more than 900 advisors from Waddell & Reed and more than 200 advisors from M&T Bank.

Total organic net new assets were $37 billion, translating to 16 percent annualized growth.

Organic net new advisory assets were $21 billion, and organic net new brokerage assets were $16 billion.

Acquired net new assets were $69 billion, of which $35 billion were brokerage and $33 billion were advisory, from the acquisition of the wealth management business of Waddell & Reed.

Recruited assets were $35 billion, more than triple a year ago. Over the trailing 12 months, recruited assets totaled $80 billion, more than double a year ago.

Net income totaled $119 million, or $1.46 per share in the second quarter of 2021. This compares with $102 million, or $1.27 per share, in the second quarter of 2020 and $130 million, or $1.59 per share, in the prior quarter.

Gross profit was $602 million during the second quarter of 2021, compared to $488 million for the same period last year, and $579 million during the first quarter of 2021.

Core general and administrative expenses increased 13 percent year-over-year to $252 million.

EBITDA increased 18 percent year-over-year to $243 million, and EBITDA as a percentage of gross profit was 40 percent. During the same period last year, EBITDA totaled nearly $207 million, and in the previous quarter totaled $278 million.

Total client cash balances were $48.4 billion, an increase of $0.1 billion sequentially. As a percentage of total assets, client cash balances were 4.4 percent.

“We delivered another quarter of strong results”, said Matt Audette, chief financial officer. “We drove new highs for assets and organic growth while also completing the onboarding of BMO, M&T and Waddell & Reed. Looking ahead, our business momentum and financial strength position us well to continue serving our clients, growing our business, and creating long-term shareholder value.”

LPL acquired Waddell & Reed’s wealth management business in April 2021 and onboarded advisors serving approximately 98 percent of client assets, equivalent to approximately $69 billion.

BMO Harris Financial Advisors onboarded $3.1 billion of brokerage assets in second quarter, which substantially completes the onboarding of its approximate $15 billion total assets.

LPL also onboarded the retail brokerage and advisory business of M&T Bank, with $21.9 billion total assets, of which $15.6 billion assets transitioned onto LPL’s platform in the second quarter. The remaining $6.3 billion of assets are held directly with sponsors and expected to onboard over the next several months, LPL said.

In addition, CUNA Brokerage Services signed an agreement to join LPL’s platform. The firm supports more than 500 advisors serving approximately $36 billion in brokerage and advisory assets and expects to onboard in early 2022.

LPL supports more than 19,000 financial advisors, 800 institution-based investment programs and 450 independent RIA firms nationwide.

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Cantor Fitzgerald REIT Secures Credit Facility, Buys California Office Complex Leased to Apple

Cantor Fitzgerald Income Trust Inc., a publicly registered non-traded real estate investment trust formerly known as Rodin Global Property Trust, has secured a new $100 million revolving credit facility with an accordion feature up to $200 million. The credit line will be used for general corporate purposes and to fund new portfolio investments.

Roger Shreero, managing director and head of acquisitions at Cantor Fitzgerald Investors, said that an initial draw of $63 million was used to purchase a two-building, 84,000-square-foot office complex in Cupertino, California that is “leased to a Fortune 5 company on a long-term basis.”

According to a filing with the Securities and Exchange Commission, the property is 100 percent net leased to Apple Inc. until July 2031. G&E Real Estate Management Services, an affiliate of Cantor Fitzgerald Investors, will manage the property.

“The advance was secured by two previously unencumbered assets in the [Cantor Fitzgerald Income Trust] portfolio as well as the new acquisition,” added Shreero.

The revolving credit facility, led and arranged by Citizens Bank N.A., has an initial term of three years with two, one-year extension options and matrix-based floating rate interest margins.

Cantor Fitzgerald Income Trust is a monthly-valued perpetual net asset value REIT that owns and manages a portfolio of commercial real estate including multifamily, industrial, office, and necessity retail properties located in the United States. As of June 2021, the REIT’s portfolio included properties valued at $391.4 million and real estate-related assets valued at $33.2 million. The REIT has raised $202.1 million in its initial offering as of June 2021.

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KBS REIT II to Sell Denver Office Tower for $203.5 Million

KBS Real Estate Investment Trust II, a publicly registered non-traded REIT, plans to sell Granite Tower, a 31-story, 561,700-square-foot office building located in Denver Colorado, to an affiliate of CP Group for $203.5 million. The deal is expected to close on August 16th.

KBS REIT II purchased the Class A property in December 2010 for $149 million, which was reportedly metro Denver’s largest commercial real estate sale of the year.

Granite Tower is a LEED Gold-certified office tower that occupies an entire block in the Denver central business district. According to the company’s website, the property sits at the gateway to Denver’s Lower Downtown Historic District (LoDo) and is within close proximity to Coors Field and Union Station.

The property is being sold as part of KBS REIT II’s liquidation plan, which was approved by shareholders in March 2020.

KBS REIT II closed its primary offering in December 2010 after raising approximately $1.8 billion in investor equity. As of March 31, 2021, the company owned four office properties and an office building that is part of an office campus.

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Sponsored: Do UPREIT Exits for DST Programs Allow Investors to Avoid Capital Gains Tax Indefinitely?

By: Gail Schneck, Chief Executive Officer of FactRight, LLC 

A growing number of non-traded real estate investment trusts are seeking to expand their funding sources by offering section 1031 exchange investment properties that may later be (re)acquired by the REIT through an umbrella partnership real estate investment trust (UPREIT) transaction. Such transactions allow investors to diversify their holdings into the operating partnership (OP) of a REIT that is likely to own multiple properties.

And if the ability to enter into section 1031 exchanges is substantially curtailed—as President Biden has recently proposed—the UPREIT option may still provide investors who have already entered into an affiliated Delaware statutory trust (DST) with the ability to continue to defer taxes (at least until the property acquired is sold or refinanced) under section 721 of the Internal Revenue Code, which provides for continued tax deferral of the original capital gains.

This is why we are also seeing a number of REITs emerge, after the issuance of DSTs by the same sponsor, to provide an UPREIT exit.  A DST with an UPREIT structure may provide a significant opportunity to the right investors, but they must understand the ramifications of such investments. Let’s look at the main considerations for determining whether investing in a DST program with an UPREIT option is appropriate for your client.

What kind of investors should consider this kind of program?

Through an UPREIT option, investors would exchange their DST interests for units in a REIT’s OP at the time the REIT or an affiliate exercises its option to purchase the DST property. Assessing whether your client has the right to receive cash proceeds to potentially pursue a subsequent 1031 exchange, if available, in lieu of OP units is a critical inquiry.

Many REIT programs do not give the investors a cash-out option, or limit the amount of sales proceeds that may be paid in cash.  In those cases, an investor interested in a future section 1031 exchange might not be suitable. However, even those programs that do give investors an option to take cash a subsequent 1031 exchange may not be viable in the future depending on the fate of section 1031.

Thus, the DST/UPREIT arrangement is most appropriate for investors seeking diversification and easier liquidity for their heirs, who are also comfortable with a relatively large eventual investment in a non-traded REIT.

What exactly would your client be UPREITing into?

My father once told me that it is unwise to make investment decisions based on tax consequences alone. And he was a tax lawyer. It is one thing to diversify a portfolio. It is another to assess what you are diversifying into. Before investing in a DST program with an UPREIT option, you and your client should step back and ask whether an eventual investment in the REIT is sound absent the potential tax advantages. After all, these programs can materially vary in the level of diversification offered, risk/return profile, quality of the portfolio, and fee structure.

What happens if the UPREIT transaction doesn’t occur?

The option is exercisable at the discretion of the REIT. Most programs intend to UPREIT the property and therefore expand the capital raise of the REIT by capturing the equity raised from the prior DST syndication. But the REIT is under no obligation to do so and may decide to pass on the repurchase if property performance deteriorates over the holding period. So investors may face taxes on capital gains when the DST exits, at potentially higher rates than prevail today, since 1031 may not be an option in the future. Of course, this prospect faces investors in any DST program these days.

Ultimately, your client must have the resources to be prepared for various outcomes in the future, in addition to being suitable for the REIT investment.

What type of liquidity does the REIT provide?

If the UPREIT transaction does occur, usually investors are required to hold the OP units for at least a year before they can be converted into REIT shares and liquidated. Upon conversion, the investors can take advantage of the repurchase program included in the REIT structure. Repurchase program features vary among and between public and private REITs. But liquidity is not guaranteed—one common feature is that these programs can be suspended or terminated without investor consent.

Safeguards for affiliated transactions

The UPREIT structure presents affiliated transaction-related risk, often at the beginning and certainly at the end of the DST investment.

On the front-end, some programs acquire properties for the DST from third parties, which they then intend to UPREIT. Other programs have the OP acquire the property, or they take an existing OP property, and drop them down into the DST. Affiliated transactions, such as the latter scenarios, require additional safeguards surrounding determination of the DST purchase price such as independent appraisals.

At the DST exit, the same third-party appraisal considerations apply. How close in time to the UPREIT transaction must that appraisal be obtained? Also, note whether the sponsor might earn a disposition fee on the roll-up transaction (whether or not the affiliated REIT will be paying them an acquisition fee). Some DST sponsors are not entitled to transaction fees for an affiliated exit, which may help to mitigate conflicts of interest, while others are.

Tax deferral forever?

One of the biggest advantages of the UPREIT structure is that investors can create diversification by exchanging DST interests into the OP of the REIT, and if properly done through a section 721 exchange, continue to defer capital gains taxes. But this tax deferral may not be forever. Subsequent conversion of OP units into common shares is a taxable event. In addition, if the REIT sells or refinances the property originally acquired through the UPREIT transaction down the road, investors may also be hit with a tax liability, which is why many REIT programs offer tax protection agreements. However, these tax protections are often limited in duration to between five and ten years.

One of the strengths of section 1031 (as it now stands) is the ability for the investors to “swap ‘til they drop,” the latter part of that phrase a euphemism for an event that affords a stepped up basis for heirs, effectively eliminating capital gain liability at that time. While UPREIT programs can offer diversification and liquidity, at some point the tax liability may loom, in part because investors will no longer have the ability to enter into another 1031 exchange. From a liquidity standpoint though, after as little as one year, investors may exit the REIT by converting OP shares into common shares. Of course, this liquidity is dependent upon the repurchase feature provided by the REIT.

Overall, the UPREIT strategy probably makes the most sense for investors who have no need of funds and want to pass a more liquid, diversified holding to heirs. If you’re looking for more information on UPREIT transactions or due diligence services in the alternative investment space, please contact Gail Schneck or any member of the FactRight team for further assistance.

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FactRight is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.


Royal Alliance Super-OSJ Acquires $4.5 Billion Firm

GenXFinancial, a wealth management firm affiliated with Advisor Group subsidiary Royal Alliance, has acquired Boston Partners Financial Group, a New England-based financial advisory firm and super-OSJ with 53 independent advisors, overseeing approximately $4.5 billion in total client assets. Financial terms were not disclosed.

Upon completion of the transaction, GenXFinancial will oversee $9 billion in total client assets, supervise 180 financial professionals, and will be the largest super-OSJ affiliated with Royal Alliance Associates.

GenXFinancial’s largest and core business, Innovative Financial Group, was founded by industry veterans Brian Heapps and Robert Mitchell in 2017. GenX’s business model emphasizes succession planning and growth for advisors using a parent company structure that combines a core super-OSJ firm (Innovative Financial Group) with two other affiliated companies – MyRemoteFA and SellMyFinancialPractice, the company said.

Boston Partners Financial Group, led by Mark Marroni for more than 20 years, will operate under the Boston Partners Financial Group brand.

Advisor Group Inc., a network of independent wealth management firms, serves approximately 11,100 financial professionals and oversees more than $450 billion in client assets. Its subsidiary Royal Alliance has more than 3,600 affiliated independent financial advisors and is headquartered in Jersey City.

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Congressman Introduces Bill to Expand Accredited Investor Qualification

On Wednesday, the Republican leader of the House Financial Services Committee, Patrick McHenry (R-NC), introduced the Equal Opportunity for All Investors Act of 2021 to expand who can qualify as an accredited investor.

The legislation directs the Securities and Exchange Commission to create an exam that individuals with investment knowledge and expertise can take to be certified as an accredited investor.

“The accredited investor regime keeps everyday Americans on the sidelines,” said Rep. McHenry. “My bill will allow more investors to qualify as ‘accredited investors,’ providing them with more opportunities to invest their money the way they want…”

Historically, individual investors must meet specific income or net worth tests to invest in the private markets. Accredited investors typically have an individual income of $200,000, a joint income of $300,000, or a net worth that exceeds $1 million – not including a primary residence.

The bill states that an individual who is certified as an accredited investor through an SEC exam “understands and appreciates the risks of investing in private companies,” and that the exam “is designed to ensure that an individual with financial sophistication or training would be unlikely to fail.”

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Starwood REIT Urges Monmouth Shareholders to Reject Sale to Zell’s REIT After Losing Bid

Starwood Real Estate Income Trust Inc., a non-traded real estate investment trust sponsored by Starwood Capital Group, has filed a preliminary proxy statement urging shareholders of Monmouth Real Estate Investment Corp. (NYSE: MNR), a publicly traded industrial REIT, to vote against the proposed sale to Equity Commonwealth (NYSE: EQC), a publicly-traded REIT founded by Sam Zell. Monmouth’s board recently rejected Starwood REIT’s unsolicited cash offer to purchase the firm.

In May, Monmouth announced its agreement to be purchased by Equity Commonwealth in a deal valued at approximately $3.4 billion, including debt. Monmouth investors would receive 0.67 shares of Equity Commonwealth for each share they own, and the combined company would have an equity market capitalization of approximately $5.5 billion.

In mid-July, Starwood REIT submitted its all-cash acquisition proposal to acquire Monmouth for net cash consideration of $18.88 per share. Starwood said that its proposal offered a 5.6 percent premium and approximately $100 million of additional value compared to the implied value of $17.88 per share of the Equity Commonwealth transaction, based on the closing price of EQC’s common shares of $26.69 on July 27, 2021. Monmouth’s board rejected the proposal and continues to recommend that its shareholders vote on the deal with Equity Commonwealth.

“We firmly believe that EQC’s all-stock offer is not in the best interests of all of Monmouth’s shareholders,” said Ethan Bing, managing director at Starwood Capital. “Starwood Capital has proposed an all-cash alternative that would deliver significant additional value to Monmouth shareholders compared to EQC’s offer along with certainty that value will be realized. We stand ready to sign a finalized merger agreement.”

Bing added, “Monmouth’s board continues to recommend an inferior transaction that denies shareholders the ability to realize significant additional value. We believe Monmouth shareholders should protect their own best interests by voting against the EQC transaction and urge their board to accept Starwood Capital’s superior proposal and allow shareholders to vote on that proposal.”

The Monmouth board does not believe the terms set forth in Starwood’s proposal “would provide a basis for discussions regarding an alternative transaction.” Brian Haimm, lead independent director of Monmouth, said that after an “exhaustive” strategic alternatives process, “the board unanimously concluded…that the EQC transaction is the best path forward for Monmouth stockholders.”

Monmouth shareholders will vote on the Equity Commonwealth transaction at the upcoming special meeting scheduled for August 17, 2021.

Monmouth shares closed at $18.93 on Wednesday, down 0.13 percent from the previous close, while Equity Commonwealth closed at $26.55, down 0.52 percent.

Starwood Capital Group is a private investment firm with a core focus on global real estate, energy infrastructure and oil and gas. The firm has raised more than $60 billion and currently has approximately $90 billion of assets under management.

Starwood Real Estate Income Trust Inc., which invests in stabilized real estate across the United States and Europe, raised $3.9 billion in its initial public offering from December 2017 to June 2021. The REIT’s $10 billion follow-on offering was declared effective in early June 2021 and has raised $500 million, as of mid-July 2021. As of June 30, 2021, the REIT’s aggregate NAV was $4.1 billion.

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Guest Contributor: The Math Is All Here on 1031s

By: John Harrison, Executive Director of The Alternative and Direct Investment Securities Association (ADISA)

We now have the math on the table for both sides on the issue of 1031s. Here’s one side: the Biden budget estimates that the IRS will raise less than $2 billion a year for the next 10 years if 1031s are eliminated (their exact figure is $19.55 billion over 10 years).

In a federal budget of trillions, this is perhaps a rounding error. That’s the plus column for the IRS. And that plus column would be even less if there were the proposed $500,000 allowance for deferral for each taxpayer using a 1031 (this amount goes to $1 million for married filing jointly). So, the $2 billion figure would shrink from a rounding error to de minimis no mention. Incidentally, the $2 billion per year figure is close that of the Ling & Petrova study—thus, we have a solid idea of what the IRS would “gain.”

On the other side we have well-vetted estimates of what 1031s actually do: they enable a surprising amount of economic activity, that is about 15 percent of commercial real estate. First (from Ernst & Young), 1031s provide over half a million good jobs, and this brings a value add of over $55 billion per year to the economy. In case you’re wondering about what kind of jobs—perhaps it’s just folks in financial services—that is not the case.

The financial services jobs only comprise 73,000 of the mix; the lion’s share of 226,000 are in leisure, hospitality, trades and transportation. About 153,000 are in education, health services, and other business services. Then the rest are in manufacturing, construction, and the like. These people and their families depend on the activity generated by 1031s.

Those are the plus numbers for 1031s, what would be the minus numbers if they go away? Costs to maintain buildings would go up. Rents would go up (somewhere in the 12 percent range), capital investment would go down, and as a result, properties would sit longer (a holding period increase of a year or more). This means lower local tax revenues and decreases in services. State and local tax revenues losses of close to $3 billion per year. At least the pain would be spread across a diverse crowd: farmers, city apartment dwellers, conservation landowners, and commercial businesses of all sorts.

If we try to net both sides together, that is an annual gain to the IRS of little measure added to estimated losses of around $55 billion and 558,000 jobs per year, then we get, well negative $55 billion and minus 568,000 jobs at least in the short term. Who’s to say that those workers can’t find other employment easily, but then who’s to say they can’t and end up as further government costs? Thus, job losses at least have to be considered in the short term as a cost.

As you might suspect, we’ve done this math before, and when we show it to the legislators they nod and want to move on to something else. Even those not directly involved in 1031s at all see the value—and most likely how that value affects them personally. The creation of 1031 like-kind exchanges over 100 years ago was a good policy move by the Feds (and they should be proud of that). We just sometimes need to remind them of their success.

John Harrison is a regular contributor to The DI Wire. This article first appeared in the Summer 2021 volume of ADISA’s flagship publication, Alternative Investments Quarterly.

Since 2012, Harrison has been the executive director of ADISA, an organization that represents the non-traded alternative investment industry. Harrison has been in association management for more than 25 years and has served in industry, education, and health associations in the U.S., Europe, and the Middle East. He was a cum laude graduate in biology and psychology from the University of Georgia and earned an MBA and a doctorate in business administration from Georgia State University.

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The views and opinions expressed in the preceding article are those of the author and do not necessarily reflect the views of The DI Wire.


RK Properties Fully Subscribes Another DST Offering

RK Properties, a sponsor of alternative private placements and 1031 exchange offerings, has fully subscribed its $32.2 million Delaware statutory trust offering for Pointe at Greenville Apartments (formerly Vantage at Powdersville), a 288-unit multifamily property in the Greenville suburb of Powdersville, South Carolina.

The private placement offering, RK Pointe at Greenville DST, launched on June 1st, the first selling agreement was signed two days later, and the final closing was July 27th, the company said.

RK Properties closed escrow on the property May 27th, as reported by The DI Wire. The property was reportedly purchased with debt from First Foundation Bank with 10-year financing, a fixed annual interest rate of 3.5 percent, and interest-only payments for the entire loan term.

Pointe at Greenville is a newly constructed Class A property within close proximity to commercial, retail, and restaurant destinations. Major employers in the area include BMW, Clemson University, General Electric, Lockheed Martin, and Verizon, among others.

Steve King, chief operation officer of RK Properties, said that the company focuses on acquiring multifamily assets nationally in locations with strong historical rent growth and economic drivers.

Last month, RK Properties fully subscribed its $36.5 million Delaware statutory trust offering for Haven Pointe at Carolina Forest, a 304-unit Class A multifamily property in Myrtle Beach, South Carolina.

RK Properties has a 45-year track record, dating back to 1976, in the multifamily market. To date, the company has purchased and managed more than $1.5 billion in assets across the country.

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CIM Income NAV Declares Monthly NAV Per Share

CIM Income NAV Inc., a publicly registered non-traded real estate investment trust formerly known as Cole Real Estate Income Strategy Inc., has declared a net asset value per share for each of its four classes of common stock, as of June 30, 2021.

Class D shares had a net asset value per share of $16.71. The previous month, Class D shares were valued at approximately $16.39.

Class T shares had an NAV per share of approximately $16.29, and the previous month, the shares were valued at $15.92 each.

Class S shares had an NAV per share of approximately $16.27. The previous month, Class S shares were valued at $15.91 each.

Class I shares had an NAV per share of approximately $17.02, and the previous month, were valued at $16.69 each.

The NAV per share is based on the estimated value of the company’s assets, less the estimated value of its liabilities divided by the number of outstanding shares, all as of June 30, 2021. Shares were originally priced at $15.00 each.

Class T and Class S shares are available to the general public, Class D shares are generally available for purchase through fee-based programs known as wrap accounts, and Class I shares are sold to institutional investors.

Investments in real estate decreased from $865.6 million to $854.1 million month-over month. Acquisition expenses and deferred financing costs decreased from $7.2 million in May to $6.8 million in June. Cash, marketable securities and other assets increased from $24.6 million in May to $29.1 million in June.

Outstanding debt decreased from ($455.7 million) to ($441.3 million) month-over-month, and subscriptions received in advance decreased from ($3.8 million) to nearly ($1.9 million). Accrued liabilities decreased from ($6.9 million) to ($5.7 million) month-over-month. The REIT had 29.54 million shares outstanding as of June 2021, compared to nearly 29.56 million as of May 2021.

Under the share redemption plan for June, the REIT received redemption requests totaling approximately $26.6 million, which was in excess of the temporarily reduced redemption limit of $1.9 million. The company said that the remaining redemption requests received went unfulfilled.

As of June 30, 2021, CIM Income NAV owned a portfolio of 121 properties in 33 states purchased for $853.9 million. The portfolio is comprised of three anchored shopping centers, 96 retail, 11 industrial and distribution, and 11 office properties, totaling approximately 5.2 million gross rentable square feet. The REIT launched in December 2011 and has raised approximately $887.2 million in investor equity as of July 22, 2021.

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