W.P. Carey exiting the nontraded REIT business

With regulations and other factors changing the marketplace, the publicly traded REIT will focus on its core business in the net lease market

Jun 16, 2017 @ 4:28 pm

By Bruce Kelly

+ Zoom

W.P. Carey Inc., one of the companies instrumental in the evolution of the nontraded real estate investment trust business, is pulling out of the nontraded REIT market.

The company will continue to manage its current nontraded REITs and other investment programs, but will no longer sell new nontraded REITs, according to a filing with the Securities and Exchange Commission.

W.P. Carey is a large listed REIT with a $7.2 billion market capitalization. Managing and selling smaller nontraded REITs through independent broker-dealers was one of its other businesses.

"It's extremely concerning anytime a successful asset manager leaves the business of providing investors access to a viable asset class who otherwise have limited access to such assets," said Mike Kell, vice president, program management and business development, AI Insight Inc. "This seems to be another example of the unintended consequences of the regulatory environment we are experiencing. However, it's also interesting to see the dynamic shift between certain managers. Blackstone is entering the marketplace while others, like W.P. Carey, are departing."

Sales of nontraded REITs have fallen sharply since 2013, when the industry raised close to $20 billion. Sales have been declining steadily ever since. In 2015, the industry raised nearly $10 billion in equity. That declined to $4.5 billion in 2016, according to Robert A. Stanger & Co. Inc., an investment bank.

New industry rules that made fees and commissions more transparent are one reason for the decline. And the Department of Labor's new fiduciary rule has pushed broker-dealers to sell nontraded REIT share classes that do not offer the juicy 7% sales commissions attached to the standard nontraded REIT A share.

W.P. Carey has raised $5.5 billion in equity from investors since 2010, according to Stanger. But fund raising the past few years has stalled, falling to $274 million so far in 2017, slightly better on a monthly basis than a year earlier but a far cry from its peak of $1.5 billion in 2014.

In a filing with the Securities and Exchange Commission, W.P. Carey said its board had approved a plan to exit all nontraded REIT retail fund raising carried out by Carey Financial, its wholesaling broker-dealer. The move was "in keeping with the company's long-term strategy of focusing exclusively on net lease investing for its balance sheet," according to the filing.

The company expects a non-recurring $10 million charge, primarily severance, to exit the wholesaling business.

The company had been considering a breakup since 2015.

"As regulations and other factors have led to significant changes to investment structures and fees, it became more clear to us as we worked to develop new investment funds, such as CPA:19 – Global, that the types of investments that would satisfy liquidity and leverage requirements and the time and scale required to reach profitability did not align well with our core investment expertise," wrote Mark J. DeCesaris, Carey's CEO, in a note to advisers. "As a publicly traded REIT, we determined that focusing our efforts and resources on growing our owned net lease portfolio would best support W. P. Carey's long-term strategic objectives."

Kevin Gannon, managing director at Stanger, said W.P. Carey "has been a leader in the nontraded REIT investment community for over 40 years and has served as the gold standard in terms of both investment performance and treating investors fairly and right. I suspect that exiting the nontraded REIT space at this time was a difficult decision for the senior management team and board of directors, given the extraordinary legacy and success in this business."

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Sep 26

Webcast

Investing 2017: Industry at a Crossroads

The advice industry is at a unique inflection point, as the way clients are investing has changed dramatically: Technology has evolved, access to innovative products has changed, and the active vs. passive debate continues to rage on. Advisers... Learn more

Featured video

INTV

How litigation has changed the 401(k) market

Deputy Editor Bob Hordt discusses the lasting impact that a flood of lawsuits brought against major companies and their 401(k) plans has had for people serving the retirement market.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.

Hackers may have profited from SEC breach

The hack of the agency's Edgar filing system occurred in 2016, but the regulator didn't conclude until last month that the cybercriminals may have used their bounty to make illicit trades.

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print