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Forest Through the Trees

Posted: Tue Oct 30, 2012 8:54 am
by DPPReview
Great discussions throughout this forum but most of the well deserved nit-picking is after-the-fact Monday morning analysis. While there is nothing wrong with the concept of private real estate funds (whether REIT or otherwise) Broker Dealers simply need to wise up and NOT approve these non-listed REIT offerings unless:

- variable costs diminish as the capital raise goes up (the singular benefit of a really large deal should be the economies of scale, period that's it! - nobody needs 15 cents on the billionth dollar, only on the first)
- the Sponsor has proven that it has the discipline to STOP raising bucket loads of money either when the market gets overheated or when it already has too much money on hand (most Sponsors [actually, all of the one's I can think of] have already failed this test)

Real estate is a very competitive business, especially when interest rates are low, so if you keep throwing money at Sponsors who have to get it out, what do they do? They over pay. Then you add a hefty load and the investors are SCREWED permanently. It isn't that complicated. Broker Dealers: you are the gatekeepers, it is up to you, not the Maybach driving sponsors to control this.