Style Drift Alert - Cole Capital

We did not have sex with that Pension Board!
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Shareholder
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Style Drift Alert - Cole Capital

Post by Shareholder » Sat Jun 05, 2010 3:31 pm

Shhhhhh - Please do not tell anyone.

Cole Credit Properties Trust III just announced in their 8K that they have purchased a $310m Commercial Office Building in Washington that is leased to Microsoft.

Funny – I do not recall seeing Microsoft’s logo on any of their marketing material. I guess there are not enough Walgreens or Starbucks to help cover their 7% dividend when you have a NEGATIVE FFO. Can someone please tell me how a commerical office building falls under the retail space? I would think the skill set in managing a commercial building a little different than a triple net lease retail shop. Cole is currently rasing so much money - who cares, let all those investors continue to think they are buying big box retail buildings and hope they don't read the filings.

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REIT Wrecks
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Re: Style Drift Alert - Cole Capital

Post by REIT Wrecks » Sun Jun 06, 2010 2:43 am

Where is your "hush" money? :lol:

Non-Traded REITs make their money from raising capital and deploying capital, not from investing it. They are very successful at the former, and they don't care much about the latter. That's always bad for investors, and it's twice as bad now.

According to the 2009 CBRE US Cap Rate Survey (the report is attached below), investment activity dropped to $52 billion in 2009, which was down 90% from the 2007 peak of $522 billion. This means there are much fewer deals to be had for hungry investors, and they will need some pretty sharp elbows to find any decent acquisitions.

At the same time, $24.2 billion of public REIT equity was raised in 2009, and $3.2 billion of public REIT IPOs were in registration in early 2010. This is on top of the $6.7 billion raised by non-traded REITs during the twelve months ended March 31, 2010 (according to the professional apologists at Stanger & Company), and this figure does not include the hundreds of millions, if not billions, raised by nearly [url=http://www.fa-mag.com/component/content/article/1-features/5637-private-reit-explosion.html]1200 private, unregistered REITs and private Reg D offerings[/url].

Predictably, this supply/demand imbalance has caused cap rates to decline and prices to increase, so much so that a number of rational, prudent investors have simply given up trying to invest. Indeed, Lingling Wei of the Wall Street Journal reported that [url=http://online.wsj.com/article/SB10001424052748703341904575266880181159428.html?mod=WSJ_Commercial_LEADTopNews]A total of 19 private-equity real-estate funds have either returned or plan to return more than $6 billion of capital to investors.[/url] Why would they do such a thing? Le voila:
"We spent a great deal of time trying to find prudent investments," said Charles Beaver, a principal at John Buck. But "there was a disconnect between the pricing that was in the market and the return you expected to receive,"
Non-traded REITs don't care about this disconnect. Just like Cole III, in 2009 Apple REIT 9 raised far more money than it could spend. As far as I know, neither REIT ever considered giving any of this money back, ([url=http://www.reitwrecks.com/forum/viewtopic.php?f=2&t=23]unless you're a pension fund and the Providence Journal has evidence that you are stupid, uninformed and possibly corrupt[/url]).

As for Apple REIT, it invests in hotel properties, and it raised almost $600 million in 2009. Like Cole, it's awfully hard to put this kind of cash to work if your strategy is to buy a Hampton Inn or a Fairfield Suites one deal at a time in places like Dothan, Alabama or Twinsburg, Ohio. It's so hard, in fact, that Apple REIT 9 simply got into the natural gas business instead. I kid you not. Apple REIT 9 [url=http://www.star-telegram.com/2010/02/16/1973748/chesapeake-tracts-change-hands.html]actually paid $147 million for 410 acres of empty lots scattered around Fort Worth, Texas.[/url] Does Apple REIT plan to build hotels on this land? Absolutely not. For the next 40 years, the land is leased to Chesapeake Energy for the production of natural gas. But don't take my word for it - I'm just a blogger.

Now, via this purchase of an office building in Bellevue, Washington, Cole REIT III also has huge, concentrated exposure to a single credit and a single asset, all in a single market. This is obviously a big departure from Cole's diversified, triple net, retail strategy. Cole REIT III also raised more money than it could spend - about $1.2 billion through the 12 months ended March 31st (again, according to the professional apologists at Stanger). Nevertheless, it is true that the Bellevue property features Microsoft as the primary tenant, and Microsoft is a wildly successful company on the cutting edge of technology. But Cole doesn't have a 40 year lease! So how might MSFT feel about renewing the lease on an an office building that may be extinct in 15 years? Who knows! But one thing is certain: in 10 years (when the REIT says it may consider liquidation), the value of that 5 year lease tail will be even more uncertain than it is now. How much is an empty office building in Bellevue, Washington worth?
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crabsofsteel
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Re: Style Drift Alert - Cole Capital

Post by crabsofsteel » Mon Jun 07, 2010 7:48 am

now, now, not everything non-traded REITs does is all bad. Even though Cole bought this at a 6% cap rate from a distressed seller (brokers report that local cap rates are 8%+), this doesn't look like such a bad purchase. The lease goes out to 2024, and you know there's no risk that MS is going to default, and there's a yearly rent increase which improves the yield to over 8% by the time the lease is up. What will the office building be worth 14 years from now? It's going to be worth something, even if MS does vacate. Compared to risk-free Treasuries, 14 years of a 6%+ yield isn't so bad

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