Central Trade & Transfer (CTT Auctions), a secondary market auction provider that delivers liquidity options for investors with interests in public non-traded REITs and other partnerships, recently acquired certain assets from a competitor, American Partnership Board (APB).
Formerly owned by Trust Company of America, APB also provided secondary market auction services.
As part of the acquisition, CTT obtained ownership of APB’s web domain and phone numbers, among other assets for an undisclosed price.
Within the past two years, CTT had contacted APB to initiate merger discussions, but had no luck until recently.
Jon Baker, Chief Operating Officer of CTT commented, “We saw the value of what APB had.”
Baker says APB recently decided to depart the business and opted to put its assets out to bid receiving interest from several bidders.
With APB exiting the market, CTT stands to control 60% of the secondary market transactional volume, says Chad Gardner, head trader at CTT, based on data provided to him from Direct Investment Spectrum.
“Call volume has increased substantially since Monday when the APB phone lines connected to CTT,” Gardner added.
Former APB clients that elect to transact through CTT, stand to benefit from an updated, real time auction platform.
APB, once known as American Partnership Services (APS), a company founded by Greg Paul in 1993, was subsequently sold in 1997 and eventually changed its name to American Partnership Board.
CTT’s Baker also has ties to APB. From 1997 to 1999, Baker led development efforts of APB’s trading platform.
Kevin Bradburn, a former APB sales desk manager, also reunited with Baker and Paul to found CTT.
Paul commented, “Interestingly enough, at least for me, APB was using the 800 number I was using when I started up American Partnership Services back in 1993.” He added, “So it went full circle.”
Secondary Market Size and Potential
“We’ve been working really hard to identify why the volume in this space is smaller than you would think it should be,” commented Baker. He says that only $45 to $50 million worth of shares exchange hands on the secondary market in any given year.
Baker believes that based on the number of shares tendered to Inland American earlier this year, there’s potential for the market to grow.
In May, Inland announced that over 60 million shares were tendered at a purchase price of $6.50, which amounts to just shy of $400 million, nearly nine times the average annual dollar volume in the entire secondary market for nearly 20 non-traded REITS that see trading activity. Inland American shares traded on the secondary market within 30 cents of that price prior to the tender.
Would industry awareness invite more sellers to explore liquidity on the secondary market?
Paul believes that broker-dealers should make secondary market options known to advisors, but many remain reluctant.
“Many broker-dealers are agnostic regarding the secondary market. They don’t feel they should be recommending or even referring firms like ours to their clients [advisors],” added Paul. That leaves investors needing emergency liquidity very vulnerable to mini-tender offers from firms that solicit investors directly at prices that can be substantially lower than provided by matching services like CTT.
He continued that CTT has been working to break down these barriers and educate broker-dealers on the benefits firms like CTT provide to investors and advisors.
Baker believes consolidation will also help increase secondary market volumes.
“Taking APB and merging with CTT creates a more concise marketplace for sponsors and broker-dealers to participate in [the secondary market],” said Baker. He continued that fewer options would make it easier for sponsors, broker-dealers, and advisors to understand the process and eventually transact business.
When Greg Paul originally launched APS back in 1993, his goal was to work with sellers, creating a marketplace that drew in buyers competing with one another to bid up shares, resulting in a better price for the seller. That vision still holds true today.
As Baker points out, industry consolidation of firms and standardization of processes potentially unites the available buyers as well. With APB’s buyers now utilizing CTT’s auction platform, future sellers may benefit from the increased number of potential bids, possibly resulting in a higher price to the seller.
Theoretically, higher prices for sellers could result in more investors interested in offering shares for sale as well.
Will CTT continue to acquire?
“Creating a centralized market was the original intent in forming APB and resulted in APB’s successful 17 year run servicing sellers and buyers of illiquid direct investments. Now the baton has been passed to the CTT team and we hope to service the burgeoning non-traded REIT market for years to come because it is not a question of if liquidity will be needed it is just a matter of when,” Paul confidently posits.
“Further consolidation will make the market more efficient and better service sellers and buyer,” Paul concludes suggesting the answer is yes.