I Run A Non-Traded REIT, And I Am A Rock Star

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I Run A Non-Traded REIT, And I Am A Rock Star

Post by REIT Wrecks » Tue Apr 05, 2011 11:15 am

There is an interesting thread developing on ARCT over at the [url=http://rationalrealist.blogspot.com/2011/04/if-you-cant-beat-them-join-them-part-ii.html]Rational Realist[/url], and I am shamefully hijacking it, only because it's neither rational nor realistic (with all due respect to the author and the commenters). The only explanation I can think of for the collectively weird thought process is that it must be the result of some kind of incestuous myopia that comes from being in the same industry for too long (or perhaps it comes from watching too many old REISA videos on "Best Practices"). :lol:

The Rational Realist did do a nice job of parsing the numbers on this latest bait and switch by an ARC/RCS managed non-traded REIT, but sadly the plot is completely lost in the last paragraph. You should read [url=http://rationalrealist.blogspot.com/2011/04/if-you-cant-beat-them-join-them-part-ii.html]that post[/url] for all the numbers (including the comments), and if you have more time and further interest then read [url=http://www.reitwrecks.com/forum/viewtopic.php?f=10&t=30]this thread here on Healthcare Trust of America[/url].

Basically, American Realty Capital has wrapped the same old management enrichment scheme inside a brand new, more sexy wrapper - the "internalization fee" has been reborn and its new name is: the "restricted stock grant"! The issue with the post is that while it does a great job of breaking down the numbers, both it and the comments that follow somehow miss the most obvious point -- that the performance threshold set by the board for this "restricted" stock grant is not even close to being "exemplary", and it's hardly restrictive at all.

Forget about the silly comparisons to the Vince Lombardi trophy, Olympic gold medals and major league baseball. Basically, to earn this award, all management would have to do is get shareholders back to slightly better than break-even, and on an IRR basis that would be about the same as showing up for a co-ed softball game.

In this case, the ARCT board has elected to reward ARCT REIT management for nothing more than mediocrity, and this award is only marginally better than the ridiculously large stock grant given to Scott Peters for knowingly paying a 7.25% dividend he could never afford.

If American Realty Capital and RCS are so progressive and transparent, why not subject ARCT management to REAL pay for performance, like beating the NCREIF index, at least? Like many other obvious questions on this board, I'm afraid this one will go unanswered...

mcaldwell
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Re: I Run A Non-Traded REIT, And I Am A Rock Star

Post by mcaldwell » Tue Apr 05, 2011 6:40 pm

oy vey. Now you've got me reading all of these posts. This can't be good for my health! :|

losemoneynow
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Re: I Run A Non-Traded REIT, And I Am A Rock Star

Post by losemoneynow » Wed Apr 06, 2011 9:03 am

Hey RW, I used to work in this industry and know its ins and outs. What senior management at ARC did was attempt to take the high road and advocate transparency in the industry as a way to differentiate his programs from the myriad others out there competing for the same capital. One means of differentiation was waiving the internalization fee, and ARC did this with much fanfare hoping to turn the flood of naive retail capital in his direction. What ensued must have been a disappointment. The anticipated flood of capital, i.e. his reward for taking the "high road" in an industry known for taking the low road, never materialized. He had given up something and received nothing in return. Hence the stock grants with performance hurdles that are laughable! He wanted to reclaim what he felt was rightfully his and this was the only way to do it!

Can we be honest here? The guys that run these non-traded REITs have no skin in the game and are out to game the system for their own benefit. It is very disappointing that these programs, which routinely subsidize dividends with DRIP shares, borrowings, and new money coming in, are allowed to continue these practices. Yes they disclose it but NOONE is reading the offering memorandums including the so-called financial adivisors. This website is helpful but it reaches too few people and billions of dollars will be lost by these investors and the charlatans who run these REITs will prosper nonetheless.

Rational Realist
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Re: I Run A Non-Traded REIT, And I Am A Rock Star

Post by Rational Realist » Wed Apr 06, 2011 9:11 am

Hey, I liked that sports analogy sentence! You're right about the low performance bar, and I implied it but did not state it. ARCT initiated the stock plan in Jan of 2010, well after most brokerage firms would have approved the REIT in late 2008 or early 2009. Now, in the final months of raising capital it bumped up the amount to pay executives under the restricted stock plan. Most non-traded REITs have performance pay already in the form of revenue sharing after investors receive a return of capital plus some annual return, typically 5% to 8% per year. I am not aware of any REIT that has achieved this level of return that would trigger the performance payments to its advisor/management. I am guessing this is why the new management compensation with a low threshold has been added.

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Re: I Run A Non-Traded REIT, And I Am A Rock Star

Post by REIT Wrecks » Thu Apr 07, 2011 10:20 am

Re: sports analogies, I was wrong too. We're actually talking beach volleyball and beers (don't worry mcaldwell, everything's already been charged to O&O expenses, including the ice and plastic cups).

The Direct Investment Research Group and ARC-Insight will keep score, and a free raffle will be held for all financial advisors in attendance. The prize will be an unbiased DIRG/ARC-Insight research report - autographed - on whether a wax job would be sufficient/necessary for American Realty Capital to "perform".
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