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A New Trading Platform for Owning Office Property?

If ETRE Financial has its Way, Investors Will Be Able to Buy and Sell Shares in Individual Properties, Just Like Stocks for Individual Companies
February 26, 2014
Very soon, if everything goes according to plan, individual investors will be able to buy and trade ownership stock in a single commercial real estate property, just like they would shares of common stock in a single company. The first property set as a test case for such trading is a noteworthy downtown Washington, DC, office building.

ETRE Financial LLC, a New York-based real estate financial services and technology company, is launching what it calls a first-of-its-kind, exchange-traded real estate platform for investing in shares of individual commercial real estate assets and portfolio REITs listed on national exchanges.

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The company this week filed paperwork with the U.S. Securities and Exchange Commission for an initial public offering of ETRE REIT, which will actually be a limited liability corporation formed to permit public investment in individual commercial real estate properties.

The twist is that each of the properties is to be held by the LLC will be held as a separate real estate investment trust, with shares traded on the NASDAQ exchange.

In its IPO, ETRE REIT is looking to raise $53 million that will be used to finance its first purchase. ETRE has cut a deal to buy 1201 Connecticut Ave. NW, also known as the Longfellow Building, from Mack-Cali Realty Corp. A final sales price has not been negotiated. Mack-Cali purchased the property for $32 million in 1999. The selling price is expected to be much higher.

ETRE has received a loan term sheet from Morgan Stanley Mortgage Capital Holdings LLC for a 10-year commercial mortgage, which will enable the borrowing of up to $44.6 million of the purchase price of the property. The proposed loan, providing for an interest-only payment feature for 10 years, is expected to bear interest at a fixed rate of 4.35% per annum.

Longfellow is a 12-story office building with 173,688 total rentable square feet located at the intersection of Connecticut and Rhode Island avenues, one block from the Farragut North metro station. The building contains both office and retail space and, as of year-end, was 86.7% leased to such tenants as Qorvis Communications, Brooks Brothers, Leo A. Daly, and Radio Free Europe/Radio Liberty. Qorvis, the largest tenant, occupies 17.9% of the building as its headquarters.

In its IPO, ETRE is selling only Series A-1 common shares, which has been established specifically for the purpose of allowing investors who acquire the A-1 common shares in this offering to own 1201 Connecticut Ave.

ETRE seeks to broaden the investment opportunity in commercial real estate through creation of what it calls the Electronic Traded Property (ETP), a new process for investing in individual commercial real estate assets and REIT equity shares that claims to support mark-to-market simultaneous pricing in price per share, price per square foot, price per unit, and price per key in real time, for both the single-asset entities and the larger portfolio REIT counterparts.

"ETRE is the next evolutionary step in real estate investing," claims Paul Frischer, ETRE's co-founder and CEO, who launched the company last year, saying he wanted to bring single-asset REITs to the market.

As envisioned, the ETRE program would also offer an alternative way to buy and sell real estate, allowing owners of single assets and smaller real estate portfolios to sell a portion or the entire stake in their properties to the public market.

Prior to establishing the company in August 2012 and setting up the platform this winter, Frischer was executive managing director of research and real estate strategies at the former Newmark Knight Frank (now Newmark Grubb Knight Frank) from January 2009 to February 2012.

Frischer was also the founder and managing member of Rexx Index LLC, formed in 2006, which described itself as a "benchmark provider in the emerging real estate derivatives market that utilizes algorithmic and econometric models to standardize commercial real estate in U.S. markets."

His partner in the ETRE venture is Jesse Stein, who serves as COO. Stein previously served as the executive vice president of acquisitions for United Realty Advisors, LP, an affiliate of United Realty Partners, a privately held real estate investment and advisory firm.

Stein said the idea behind the ETRE platform is to deliver unprecedented transparency into publicly-traded real estate in real-time metrics for both equity and real estate investors.

"The platform provides investors with the ability to create their own diversified real estate portfolios, and allocate investments based on geographic, asset type and yield criteria," said Stein.

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