Why Form a REIT Now?

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Brian D. Milovich

Managing Principal, Calvera Partners

Why form a long-term perpetual investment fund/REIT now? We continuously talk to our investors and their biggest issues always are: how much they pay in taxes, the hassle of filing taxes in multiple states, the desire for regular distributions of cash flow, and owning a part of quality real estate with the ability for future value appreciation. This list doesn’t change as the market fluctuates. They want to be invested in cash-flowing real estate at all times, in the most efficient manner possible. We think now happens to be an especially good time to launch a fund like the Calvera Income and Growth because of the drop in apartment values and eventual distress of many owners. We like to invest when values are down and owners must sell…doesn’t everybody?

As we were forming the Calvera Income and Growth Fund last year, the name-brand REITs were experiencing significant redemption requests and withdrawals. The market’s belief was that BREIT and SREIT, among others, were over-valuing their portfolios and thus investors’ shares had inflated NAVs (net asset value). Astute investors were attempting to game the system and sell their supposedly over-valued shares of BREIT and then buy under-valued shares of a public REIT such as EQR (Equity Residential). There was a negative news cycle around nontraded REITs because of the exodus of capital. These investors are smart, and they were maximizing their positions.

Because of these events, we questioned whether we were doing the right thing by creating a new long-term fund that would own property via a REIT. Then, we stepped back and remembered that what the Calvera Income and Growth Fund is setting out to accomplish is always relevant. Our timing is made even better given the current and pending distress in the market, which should allow us to find attractive cash flowing deals that we can hold for the long-term.

Recently, our strategy was further vindicated by the announcement of several new REIT launches by large institutional fund managers. Like Calvera, they see an opportunity to take advantage of the wave of distress and are not hampered by a languishing existing portfolio like some current REITs have. In the article, the Institute for Portfolio Alternative’s CEO, Anya Coverman, said that “firms launching [nontraded REITs] today are taking the long view. That’s what real estate investors do – they’re not looking to time the market based on a cycle.” Kevin Gannon, the CEO and Chairman of Robert A. Stanger & Co., also noted that “I think this structure [nontraded REITs] is going to take off like a rocket.” We believe we launched the Calvera Income and Growth Fund at the right time, and we’re looking forward to building a high-performing apartment portfolio.


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