Last week, in a truly extraordinary move [for background, please see Cole REIT III "Wholly Inappropriate" Says Advisor], Cole offered to repay the town of West Warwick in full, effectively waiving its redemption policy without even being asked. And this evening, in a meeting with "lots of fireworks" the town voted to take it back - in full. Why is West Warwick so special? Could it be the mounds of bad press being churned out by the Providence Journal?
The Cole REIT III prospectus says that Cole may waive the redemption policy "due to a stockholder’s death or bankruptcy or other exigent circumstances," upon request. Is it true that Cole is now offering to refund everyone's money without even being asked? Or is Cole just a cat caught in a litterbox? Are there any shareholders out there that care to ask these questions, especially now that "exigent circumstances" is understood to include the simple acts of being stupid and uninformed?
Cole's written offer to refund the investment is interesting. It suggests the linguistic agility of Bill Clinton, absent the agility. It's possible, boys and girls, that the Executive Vice President & General Counsel actually inhales. The letter expends two full paragraphs in an attack upon the character and record of a fiduciary representing clients with over $30 billion under management, conveniently neglects to address any of the issues on their merits, and emerges six paragraphs later with its grammatical tongue curiously
issues raised regarding the decision by the Board to make this investment, including allegations of relationships between the independent broker who introduced the Board to this investment opportunity, on the one hand, and present and former Board members who made the decision, on the other - allegations of which we are unfamiliar with the underlying facts - have created a unique circumstance that would justify a redemption
Given these events, the prospectus that I read clearly does not disclose Cole's actual policy. In addition to all investors with "exigent circumstances," Cole now seems to be saying that any investor with "a unique circumstance" can redeem their shares without penalty. Sadly, the only unique and exigent circumstances in this case happened to be two institutional financial advisors that had a fiduciary duty to act in the best interests of their client, and they refused to buy Cole's bag of tricks.
And what about P-Solve, the fiduciary that resigned rather than allow itself to be associated with the town's decision to "invest" in Cole REIT III? The Townsend Group, a pension consulting firm that specializes in real estate and advises 85 clients with over $100 billion of real estate allocations, said that P-Solve's negative recommendation of Cole REIT III was "accurate, appropriate and should have been heeded".
The Townsend Group is one of the largest - if not the largest - real estate pension consultants in the business. Their review, commissioned by the state employee retirement system, echoed the very same concerns raised by P-Solve, including Cole's "material" conflicts of interest, its "punitive fee structure" and illiquidity which results in "no immediately determinable value".
Townsend also cited "disturbing trends" in other Cole programs such as "paying current investors dividends based on significant borrowings and equity raised from new investors." This - in case you were wondering - is the very definition of a Ponzi scheme. The only difference here is that it's all disclosed up front, so that makes it OK. The results of Townsend's review are not at all surprising; what is surprising is why any broker would ever recommend such an investment to their clients:
Townsend also said that its review of prior programs revealed "inadequate" valuation processes, noting that most of the properties are held at or near cost, despite being acquired at the top of the market. Townsend believes that the value of Cole's portfolio is likely to have dropped by at least 40% since then.
Like everything else in this incredible cesspool, does that reflect simple inadequacy - or purposeful and deliberate deceit?