BH and others offered AFTER market collapse

Will Behringer Harvard ever cover its dividends???

BH and others offered AFTER market collapse

Postby RealEstateGuy » Thu Sep 01, 2011 11:21 am

New to the site - very interesting reading! Lots of stuff maybe the general public doesn't know about these non-traded REITs and how they are run.

While I totally agree with much of what is said here about the non-traded REITs being run as a bit of a Ponzi scheme - dividends from new investors, etc., I think there is one aspect of these non-traded REITs that is a very unique and positive byproduct of their form. While offered, we can buy the shares for the same price (usually $10) the very first day of the offering and the very last day - sometime 3-4 years later. Is that fair? Maybe not. However, for the astute investor, it is a great opportunity, IMO. I own BH Multi-Family for this very reason. Regardless of the negatives, just look at the price appreciation of traded multi-family REITs since the market collapse in 2008! Now, 3 years later I was able to buy a multi-family REIT for the same $10 as in 2008.

I believe they bought enough during the downturn in 2008-2010 to be sitting on many properties that are already worth a lot more than they paid for them - and I didn't buy until it became clear that this sector had turned greatly positive. Had it stayed depressed after 2008, BH Multi-family would have been selling $10 shares that were likely worth FAR LESS and been a terrible buy for late investors (whose investment would go straight to current investors in the form a a "dividend). That didn't happen though - appartment REITs recovered a ton (100% and more from the lows in MANY cases).

Now, I do agree the BH MF and all the others have a LOT of ground to make up just to cover costs and already paid dividends (from capital) but in this case I believe the timing was lucky enough to overcome these and more. Time will tell if this is the case or not, of course.

Likewise there are some non-traded REITs in current offering that may warrant a look primarily because they had the LUCK of not owning too much when the 2008 collapse happened and having picked up a lot on the cheap during 2009-2010. Is it enough to overcome all the ridiculous costs and dividends? Maybe, maybe not. But it IS an advantage to see how the markets have recovered in each sector and still be able to buy in for $10 if you believe the tailwinds have been such to overcome the costs.

The opposite is true when they buy mostly at a HIGH yet still offer product for $10/sh when they know the properties they already won are worth no where near that much.

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Re: BH and others offered AFTER market collapse

Postby CREbuyer » Fri Sep 02, 2011 2:04 pm

BH Multi-Family is going to be a very challenged program. While there is truth in the fact the properties bought during the downturn should perform well, there are two major headwinds this REIT faces:

1) the REIT started in 2006 as private program, then converted to a public program. to juice their yield at a time when cap rates were very low, BH loaned money to developers, instead of buying properties. They were collecting a nice 8% yield, but that still could not support a 7% distribution rate, so principal was used to cover the nut. To make matters worse, the developer (Fairfield) went bust, and BH had to then foreclose on the assets, and complete their construction, with 0% occupancy to boot. So the myth I have heard BH spread to the public is "we did not acquire any assets prior to 2008." completely false, if you loan money at the peak, and then foreclose on an asset, you acquired it. and your acquisition price would be the total funds loaned to the borrower, plus cost of completed construction. so BH paid far more for these assets than they were worth. At the time, this represented over 25% of the funds capital, not a slight impairment.

2) the second problem of this REIT, is the obnoxious amount of principal used to cover their 7% yield. They had foreclosures, construction costs, and lease up expenses hit at once, choking out their yield. but to keep the fundraising arm happy, they had a bologna yield of 7% which they have never covered in a single payment in over 5 years.

So, were apartments a good buy from 2008-2010, sure. but will a 15% load, 15% cash burn, and busted loans from 2006-2008 be offset by these good buys, probably not. a 40% increase in value just gets you back to par on this one.

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Re: BH and others offered AFTER market collapse

Postby RealEstateGuy » Mon Sep 05, 2011 1:14 pm

Yeah... those are certainly heafty obsticles to overcome. I think it comes down to two things. 1. What % of the final portfolio was purchased when? DId they wind up getting MOST of it at bargain basement prices or just "some" ? 2. Just how much has this sector recovered from those lows. All the data I see on TRADED apartment REITs indicate it has recovered a ton - 100% and more from the lows. So I have confidence this one will work out even with the very significant boogey it needs to overcome - say 40% or so.

The older BH REITs seem doomed!

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Joined: Thu Sep 01, 2011 10:58 am

Re: BH and others offered AFTER market collapse

Postby sidneysonnino » Mon Nov 11, 2013 3:10 am

Thanks for sharing useful information.

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Joined: Mon Nov 11, 2013 3:04 am

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