Columbia Property Trust IPO stings investors

Investors in Columbia Property Trust got some bad news this month when the REIT went public, in another sign that despite the real estate market's post-2008 recovery, older nontraded real estate investment trusts are still struggling with the hangover of the financial crisis. The $5.7 billion REIT, stuffed with so-called Class A properties, began raising money at the start of the real estate boom in 2004 and finally went public this month at $22.50 a share, offering long-term investors a liquidity event to exit the fund. But before its public listing, the REIT underwent a reverse 4-for-1 share split, which raised its price to about $29 a share, from just over $7.33. That means that investors who bought in at $10 a share essentially were offered the opportunity to cash out at a net asset value of about 45% less than the price they paid at their initial purchase. The Columbia REIT has also cut its distributions twice since 2009, said Krisna Patel, an investment adviser at Om Wealth Management. Mr. Patel estimates that his clients have lost about 30% since purchasing shares of the REIT in 2009.

Traded REITs prosper

By contrast, the $4.45 billion iShares U.S. Real Estate ETF (IYR), which tracks publicly traded REITs, has more than doubled in price over that period. “The public listing was worse than we expected,” Mr. Patel said. “Over a time period where real estate has done well, these guys have continued to lower the dividend and lower the share price” Tripp Sullivan, a spokesman for the REIT, didn't return calls seeking comment. The Columbia REIT is just the latest nontraded REIT to stage a liquidity event this year. Chamber Street Properties (CSG) and Cole Real Estate Investments Inc. (COLE) both went public in the second quarter. Chamber Street Properties fell from $10.10 to $9.24 a share last Thursday. Cole Real Estate Investments has fared markedly better, trading at about $12.53, up from its initial public price of $11.50 a share. In July, American Realty Capital Properties Inc. (ARCP) said that it would buy the outstanding shares of a related nontraded REIT, American Realty Capital Trust IV, for $3.1 billion in stock and cash. Other nontraded REITs, such as American Realty Capital Healthcare Trust Inc. and Griffin-American Healthcare REIT II, have also indicated that they will explore liquidity events this year.