James Sprow | Blue Vault |
Sealy Industrial Partners III, LP., “The New Normal in Industrial Real Estate”
Brian Rivera, EVP Business Development, Sealy Investment Securities
Peter Jackson, President & CEO of Sealy Investment Securities
Sealy has a longstanding track record in industrial real estate, which has become a hot asset class in today’s market. Sealy has been investing in industrial real estate for six decades.
The strengths of the company:
1. Operating platform: fully integrated operating platform, the key ingredient to the entire organization. Development, leasing, all in-house.
2. Access to deals, primarily in SE and SW US. They have access to a very large brokerage community. They acquire $350 to $500 million in RE each year. Most deals are done off-market. A strong network of brokers. A lot of the deals never go to market. Get better pricing that leads to better returns.
3. Enterprise financing gives them much more flexibility; borrowing at LIBOR plus a spread, at extremely attractive rates. They hedge themselves against movements in interest rates, buying caps to protect themselves.
Shifting global trade patterns will benefit U.S. industrial real estate markets, especially as companies move some production away from China and increasingly look for ways to diversify their supply strategies. There is a “China-plus-one” strategy in which companies shift some of their production from China to lower-cost exporting countries in the region. There is also a trend moving from “Just-in-time” to “Just-in-Case” that creates a demand for industrial real estate that Sealy knows best.
UMB, “Beyond Banking: Life cycle support for alternative product sponsors”
Amy Small, Executive Director, Institutional Custody
Mike Huisman, SVP, Transfer Agency
Tim Cook, SVP, Corporate Trust
Tim Cook outlined the important considerations when selecting an escrow agency. These include: investor confidence, expertise, responsiveness/speed, and information/updates. UMB’s Escrow Services include nontraded REITs, subscriptions, buy/sell, class actions, reinsurance, QSF, paying agent, and exchange agent.
Having an escrow agent lends a lot of credibility to your fundraising effort. Do they have experience in the space? It’s important to have a partner in your offering that can deliver on escrow and distributions, deposit levels, where the money has been cleared, etc.
Mike Huisman outlined the transfer agency services offered by UMB, across the areas of Operations, Financial Control, and Investor Services. He illustrated trends in digital migration, from 51% paper in 2019 to 68% digital in 2020. People kept investing and call center activity went up significantly in 2020, both in the number of calls and the length of calls. The company is researching product initiatives to add AI to standard products like private placements, Reg Ds, and REITs, but also new products like Blockchain and Cryptocurrencies. Their number one role is to protect assets.
Amy Small discussed the growing threats of fraud and what we can do to stay protected. These include establishing predefined payment instructions, limiting the number of employees who have approval authority, establishing protocols for emailed wire transfer requests with multi-factor authentication, and other procedural safeguards.
Panel Discussion, “Essential Real Estate-We Told You So!”
Keith Hall, Co-Founder, Pacific Oak
Adam Lotterman, Co-Chief Investment Officer, Bluerock
H. Michael Schwartz, Founder & Executive Chairman, SmartStop Self Storage
Warren Thomas, Managing Partner, ExchangeRight
The panel agreed on their number one priority: Protect the investor’s capital.
Adam Lotterman stated that the Bluerock-sponsored interval fund did quite well during 2020. Warren Thomas described the ExchangeRight products as meeting the 1031 exchange needs of retirees and pre-retirees, as well as providing a REIT as a possible exit strategy. Keith Hall said that Pacific Oak does not really have a sector focus but looks for opportunities in job growth markets and mismanaged assets. They try to find unique products that do not compete with many others. Michael Schwartz’s company manages about $1.7 billion in self-storage assets in the U.S. and Canada. They are somewhat unique in the number of employees they have. They are looking at providing another full-liquidity event in the next 24 months.
Stacy Chitty asked each panelist, “How did you survive the 2020 pandemic? Had you ever considered the possibility of a pandemic?” Adam Lotterman said, “We didn’t pencil out a pandemic. What we do we call “fire drill planning.” We were able to face the unknown because of that planning.” Warren Thomas shared, “We were looking at how we could do well in the Amazon environment and the recession environment. We didn’t count on the drying up of the debt markets. We had to begin thinking about all-cash deals and lining up new sources of debt. Fortunately, about 97% of our properties were deemed essential by the government, and that helped a
lot. We had a banner year last year.” Keith Hall said, “We certainly didn’t worry about a pandemic, and the length of the pandemic was surprising. We had gotten into the SFR market and that proved out very well, with 2020 being a banner year for SFR.” Michael Schwartz said, “We’ve been preparing for things we have seen before, like a recession. When the pandemic hit we were concerned, but we were sitting on about $150 million in cash on our balance sheet. We closed out the year with about a 7% increase in NOI, carrying about $400 million in unrealized gains in our portfolio. Large players like Blackstone and Singapore have moved into self-storage. Thank you very much!”
Bluerock, “Bluerock’s 2020 Review and Bullish Outlook for Institutional Private Real Estate”
Josh Hoffman, President, Bluerock Value Exchange: Managing Director, Bluerock
Dustin Zachmeyer, Senior VP of Due Diligence, Bluerock
Josh Hoffman summarized Bluerock’s successes in 2020, including their success at working from home, needing no corporate-level debt, and strategies to maintain occupancy at all 84 properties. Across all programs, they had positive equity inflows and met all stated redemption requirements. Bluerock was #1 in capital raising using nontraded preferred stock in 2020 with a 42% market share. Their interval fund, TI+, was the #1 in capital raise in the period April 2020 thru January 2021. 
Within the IBD sector, Bluerock was consistently in the top five firms in capital raise and was #3 for the period 2018-2020. BRG had the highest total return among all publicly listed multifamily sector REITs in 2020. The REIT currently manages $2.7 billion in assets in 23 markets and has done more than $3.8 billion in deals. BRG’s 2020 returns outperformed the MSCI by 22.3%. BRG’s management is the REIT’s single largest shareholder at 31% of common stock. BRG’s Series T Redeemable Preferred stock has an annualized dividend paid monthly of 6.15%, with a CFFO coverage of 1.4X.
Bluerock also does 1031 exchanges, doing $1.9 billion past and current 1031 programs, with a current portfolio of 7,300 apartment units.
Inland Real Estate, “CRE Value Creation: High Conviction in a Low Rate Environment”
Mike Ezzell, President and CEO, Inland Securities Corporation
Mike presented a wealth of macroeconomic information, including the growth in the M2 money supply at 25% in 2020, households holding $2.2 trillion more in cash as of 9/30/20 compared to the end of 2019, suggesting the potential for inflation, which has been reflected in higher bond yields since September 2020. In this environment, active management becomes increasingly important in driving real estate values and offsetting inflation in client portfolios.
Inland’s investment approach rests on their acquisition expertise, operational excellence, and strategic dispositions. Their current product suite includes Inland Private Capital Corporation, a securitized 1031 exchange market leader, offering multiple owner tax-focused real estate strategies. Inland Venture Partners offers opportunistic, value-add, and development private equity real estate investments. InPoint Commercial Real Estate Income is a perpetual life NAV REIT, with $456 million in 30 real estate debt investments.
Altigo, “The Momentum Continues: How 50+ Asset Managers and 60+ BD/RIA Firms are Improving their Business”
Bill Robbins, CEO, WealthForge
Megan Bosch, Sr. Director, Strategic Accounts
Alternative investment transactions continue to be lengthy, manual, and paper-laden, leading to NIGO errors, security risks, and operational inefficiencies that drive up costs and discourage wealth managers and investors from considering alternative investments.
Altigo is an electronic processing platform from WealthForge designed to improve the alternative investment experience for registered investment advisors, broker-dealers, asset managers, and their investors.
WealthForge set out to break barriers, expand accessibility, and create a platform that connects sponsors, advisors, transfer agents, and other participants across the entire process. Similar to what has been seen in other areas of financial services, from online banking to robo-advisors, technology has paved the way for efficiency and progress. For sponsors, WealthForge created an end-to-end service to execute and manage the subscription process. For advisors and brokers, they’re making it faster and easier to invest in opportunities of interest on behalf of clients.
Blue Vault Presentation: “NTR Fees: The Real Story”
Jim Sprow, Senior VP, Research at Blue Vault, presented a report on how NTR offerings have structured their fees. By far the most important fees charged by NTRs are the annual asset management or advisory fees paid to their external advisors. Only one offering has changed the annualized percentage of these fees in the last two years. Because these fees are paid every year, unlike other fees like acquisition and disposition fees, financing fees, and performance-based fees (in life-cycle REITs), the impact on shareholder returns is significant. Any difference in the rate asset management fees are charged is reflected 1:1 in shareholder returns. Investors and advisors need to be aware of the different methods that fees are calculated, whether based upon aggregate NAV, asset costs, or market values of assets. For an in-depth analysis of the fees associated with NTR offerings, we suggest the NTR Fee Studies published by Blue Vault and available to subscribers.
CAIS, “CAIS IQ: The Future of Financial Education”
Andrew Smith Lewis (aka “ASL”) Chief Innovation Officer, CAIS
Nic Millikan, Managing Director, CAIS IQ, CAIS
Smith Lewis began the discussion by illustrating the under-representation of alts in the independent wealth channel. He suggested the key barriers to increased alt investments are: access, diligence, transactions, reporting, and education. 67% of advisors want to deepen their understanding of alternatives, but advisor education has not evolved to meet this need.
By using licensed technology from Cerego, CAIS uses AI/Machine Learning powered courses. CAIS offers an evidence-based approach to accelerated learning, with a curated content menu and web or mobile delivery. Launched in 2019, CAIS IQ has over 15,000 learners in 57 courses.
Bourne Financial Group, “Post Pandemic: Seniors Housing is Here to Stay”
Bob Bourne, Chief Executive Officer and Founder, Bourne Financial Group
Steve Case, Chief Investment Officer, Bourne Financial Group
Jade Miller, Director National Accounts, Bourne Financial Group
Bourne manages a senior living portfolio with an AUM of $800 million on a cost basis and around $1 billion in market value. All of their tenants are private pay. Bourne’s facilities are attractive to Baby Boomers and their parents, looking more like a hotel than a nursing home. They are large enough to offer amenities, spreading the larger amenity packages over more units. With 60% of senior housing costs in labor, it is important to spread labor costs over more units as well. 
Bourne finds under-served submarkets for their developments, with older units at full occupancy, growing populations at rates exceeding the national average. COVID did impact the senior housing industry through declines in occupancy, mainly due to state regulations. If operators cannot move new people in, there will be a decline in occupancy. The senior housing industry ended 2020 at 71% occupancy while Bourne ended the year at 80%.
Bourne Senior Housing V is a $75 million Reg. D offering, to develop, lease-up, and sell senior housing communities, a growth and total return investment opportunity. The targeted asset holding period is approximately five years.
MetroMarke Rehab Partners I, L.P.
Michael Mauceli, CEO, MetroMarke, LLC
Gina Thomas, Chief Development Officer, Nobis Rehabilitation Partners
The primary purpose of the partnerships is to develop inpatient rehabilitation facilities (IRFs) and give investors an impressive IRR over a five-year holding period. IRFs are free-standing hospitals (40 to 60 beds) that receive discharged patients from acute care hospitals in need of intensive rehab care after debilitating illnesses or traumatic injuries.
Their goal is a short stay, averaging around two weeks. They want to get patients back home, with 60% of all patients treated going home.
Industry Q&A with Blue Vault
Moderator: Stacy Chitty, Managing Partner, Blue Vault
Michael Mauceli, CEO, MetroMarke
Bob Bourne, CEO and Founder, Bourne Financial Group
Andrew Smith Lewis (aka “ASL”) Chief Innovation Officer, CAIS
Mike Ezzell, President and CEO, Inland Securities Corporation
Josh Hoffman, President, Bluerock Value Exchange; Managing Director, Bluerock
Warren Thomas, Managing Partner, ExchangeRight
Brian Rivera, EVP, Sealy Investment Securities
Stacy asked each Summit presenter a number of questions from the audience. He asked Mike Ezzell whether Inland foresees pivoting into the industrial sector as opportunities present themselves, and Ezzell said that is in their plans. He asked CAIS IQ’s Smith Lewis if the training software is available for free to advisors and the answer is “yes.” He asked Rivera of Sealy if failing malls could be conceivably converted into distribution centers and the answer was, “very doubtful, as they were built to different standards and couldn’t be economically converted.” He also asked if Amazon is a big owner of industrial distribution facilities and the answer was, “no, they primarily lease these warehouses from others.”
