|Real estate industry veteran Harold Hofer, who with backing from former CB Richard Ellis exec Ray Wirta, has launched Nexregen Real Estate Investment Trust I, a unique non-traded REIT designed for low-dollar investors. |
Real estate industry veteran Harold Hofer, with financial backing from former CB Richard Ellis CEO and vice chairman Ray Wirta, has launched Nexregen Real Estate Investment Trust I, a unique non-traded REIT designed for low-dollar investors. In some ways, it is a re-launch.
Nexregen provides a proprietary web-based system through which investors can purchase small-dollar interests in commercial real estate
properties, in the real estate investment trust or "REIT" format.
Wirta and Hofer hope the relaunch has better timing than their first attempt. They originally launched the concept in Texas in the summer of 2007 shortly before the fast and furious collapse of the residential and commercial real estate markets.
Despite that, Nexregen's predecessor REIT purchased Firewheel Village, a 150,000-square-foot shopping center in the Dallas suburb of Garland, TX. Firewheel Village continues to be owned by Nexregen, is 100% leased, and has paid quarterly dividends of approximately 8% continuously since 2007.
"Our goal is to make investing in income-producing commercial real estate an easy and user-friendly experience," Hofer said. "Nexregen's founding principle is that all investors should have access to the same real estate opportunities that are typically reserved for high net worth individuals and institutions. For as little as $5,000, smaller investors can purchase shares in Nexregen REIT I, representing ownership in income-generating properties."
The company's name, Nexregen, springs from words that welcome investors to the "Next Real Estate Generation." Hofer continued: "We want to reach folks that are Internet savvy, and that routinely engage in commerce over the Internet."
Unlike other private REITs that also offer investors small interests in large commercial property holdings, Nexregen utilizes a web-based distribution channel that eliminates the need for commission-based intermediaries.
"Typically in other private REITs, 10% of the share price is paid out to broker-dealers in the form of commissions," Hofer said. "Our method of distribution is the internet and our web site. We have eliminated the standard 10% commission. Our shareholders will have a significantly greater percentage of their initial investment actually invested in real estate assets."
Nexregen's real estate strategy is to invest in single-tenant properties leased to creditworthy retailers under long-term net leases.
"The goals of this investment strategy are to generate a predictable and stable cash flow, paid to investors via quarterly dividends, and to preserve and enhance the underlying value of the leased properties," Hofer said.
Nexregen REIT I intends to purchase approximately 20 net-leased property investments, if it sells all of its 2.5 million authorized shares (priced at $10 per share).
Nexregen REIT I has already made its first investment: A minority interest in an existing partnership owning a portfolio of Southern California Del Taco fast-food restaurant properties leased directly to Del Taco.
"Based upon the rents paid by Del Taco in 2011, we anticipate that the first full year dividend payable to Nexregen REIT I shareholders will be approximately 6%," said Hofer, while noting that past performance is not a guarantee of future results.
"Our rationale for providing the credit facility, and thereby purchasing investments in advance of share sales, is to allow prospective investors an opportunity to 'kick the tires' before their investment decision is finalized. We have committed to fund the credit facility for a two-year term. As shares are sold, the credit facility is proportionately paid down; and then utilized again to buy subsequent investments," Hofer said.
Another potential major benefit derived from the credit facility is the fact that rent-supported investor dividends accrue immediately, rather than after certain thresholds of share proceeds are achieved. "In other words, cash generated from share sales will not be placed into an escrow account until enough shares have been sold to purchase a property - in Nexregen REIT I, an investor's money is put to work immediately," said Hofer.
Hofer is an attorney by training with more than 30 years of experience in real estate, and has participated both as a principal and a broker in real estate transactions exceeding $2 billion. Hofer has extensive underwriting and acquisition experience and has asset managed multi-hundred million-dollar portfolios of owned properties. He is Nexregen's Managing Principal.
When the two originally launched the concept in Texas in 2007, CoStar caught up with Wirta for a Q&A on the venture. This go around, Wirta is currently president of The Irvine Co.'s Investment Properties
Group and declined to be interviewed in deference to his new position. CoStar did, however, catch up with Hofer for an update.
Q: Talk about timing a little bit. In October 2007, we were at the top of the real estate markets in pricing and the small investor was pretty hampered in finding good deals. But the collapse was so great and so fast, it must have scared investors away even from $2,500 deals; yes, no?
A: Yes. When we launched our first Nexregen offering in the summer of 2007, publicly traded REIT stocks were at or near all-time highs. Six months later, public REIT stocks were down over 20% and then, in late 2008 through early 2009, these public REIT share prices fell another 50%. So we were dealing with significant market headwinds. In spite of these headwinds, we were able to sell a majority of the interests in our first Nexregen offering.
Q: Now in the summer of 2012, what are the primary motivations for the launch / re-launch?
A: We had always intended to continue our capital aggregation efforts using the Nexregen model. Given the very uncertain times we all experienced over the past several years, we elected to remain on the sidelines until we felt certain that we had reached, and passed, a market bottom. We believe that the commercial real estate markets have bottomed out and we are therefore continuing on with our Nexregen strategy.
Q: What is the advantage of this type of investment for the small investor now vs. five years ago?
A: The advantage remains the same: Real estate investment access for small investors, allowing them to include commercial real estate in their investment portfolios without a significant capital commitment. REITs are the common real estate investment choice for smaller investors.
REITs are either listed and traded on a stock exchange, or are non-traded. Dividend yields for traded REITs have averaged around 3.5% for the past several years. We expect that Nexregen's dividend yield will be significantly higher.
As to non-traded REITs, which include Nexregen, the traditional method of raising investment capital has been through commission-based broker-dealers. The commission is in the 10% range, which puts the investor at an immediate and significant disadvantage - 10% of their investment is not going into hard real estate assets.
Our distribution model is different: Rather than using commissioned intermediaries, we offer and sell shares in our REIT directly to investors over the Internet.
Q: Looks like going forward, you intend to focus on net leased properties. That seems to be a change away from the small neighborhood center concept of Firewheel. If that is the case, what has prompted that switch?
A: The current market is focused on yield and safety. Small properties net leased to credit-worthy retailers offer both. We also like the diversity in assets we will be able to provide to our shareholders, given the typically smaller dollar value of single tenant net leased properties.
Q: So you're tackling California now. Are you still interested in taking the concept national or do you intend to pursue state by state? And why?
A: We would like to take the concept nationally when we scale up. The costs associated with a national sales effort are significant, though. At this stage, there is plenty of potential Nexregen shareholders right here in California.
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