New York real estate firms set up REITs to raise cash

Embattled developer Kent Swig is trying to bundle some of his Manhattan properties into a real estate investment trust. If he succeeds, he will be able to repay some of his many creditors in shares, since his efforts to raise cash have come up short. It is a daring strategy, but Mr. Swig's company is one of three New York real estate firms that are turning to the stock market to raise cash at a time when badly burned banks are wary of initiating large loans. In taking that route, they are hoping to ride the coattails of big, established REITs, which have raised billions of dollars during the past year and have seen their shares rebound from depressed levels last spring. “Compared to the alternatives, REITs are a better way to raise money for real estate,” said Brian Jones, a director of the real estate investment-banking group at Robert W. Baird & Co. Inc. Joining Mr. Swig in an effort to tap the stock market for cash is Forest City Ratner Cos., which hired Bank of America Corp. and Barclays PLC to explore underwriting a REIT of its retail properties. Meanwhile, American Realty Capital New York Recovery REIT Inc. is trying to raise up to $1.5 billion to purchase distressed Manhattan office properties. Each of the three is different in many ways, but what they share is a focus on New York's commercial-real-estate market as part of their core investment strategy. The American Realty New York REIT is the latest offering by American Realty Capital Trust Inc., a firm founded three years ago by Nicholas Schorsch. It is distinct from the other two REITS being formed. As a so-called blind pool, it has no assets but will buy properties with the money it raises. Additionally, it will be a non-traded REIT, meaning that its shares won't be listed on an exchange. “New York is the best office market in the country, and our focus is to find investment opportunities here,” Mr. Schorsch said. What Forest City hopes to offer investors with its proposed REIT isn't office buildings but retail properties. Forest City didn't return calls seeking comment. Mr. Swig seems to have already settled on the idea of tying several of his properties together. The developer initially flourished by buying downtown office towers inexpensively. But Mr. Swig made a disastrous move into residential real estate. Launching a REIT will be tough to pull off. It will require Mr. Swig's lenders, creditors and partners in the buildings to sign off on the plan. Moreover, his litany of problems could turn off potential investors. Mr. Swig's lawyer, David Sharf, said that negotiations are under way. Theresa Agovino is a senior reporter at sister publication Crain's New York Business.