Category Archives: Subscribers Only

Carter Multifamily Joins the Alternative Investment Exchange (AIX) Platform

Carter Multifamily Joins the Alternative Investment Exchange (AIX) Platform

Seamless data connectivity and paperless processing enables Carter Multifamily to raise greater capital by providing exceptional experience to allocators

February 3, 2021

Philadelphia, PA, February 3, 2021 – Alternative Investment Exchange (AIX), the platform making it easy to buy, own, and sell alternative investments, has onboarded Carter Multifamily Fund Management Company, LLC (“Carter Multifamily”) to the AIX platform. This integration opens the path for allocators to make Carter Multifamily funds a bigger part of their client portfolios. The successful onboarding was coordinated in tandem with Carter Multifamily and its independent broker-dealer and transfer agent partners.

Carter Multifamily is a private company focused on acquiring multifamily real estate investments that offer value-add enhancement opportunities. When the COVID-19 pandemic struck, it made the traditional paper-based processes associated with buying, owning, and selling alternative investments even more difficult and cumbersome for Carter and its partners. For Carter Multifamily, the pandemic accelerated its path toward adopting an efficient straight-through investment process as it shifted operations virtually.

After meeting with AIX, Carter Multifamily was motivated to digitize its entire process making it easier for partners hindered by labor-intensive paperwork, NIGO (Not in Good Order) errors, and other compliance issues. In working with Carter Multifamily and its partners, AIX conducted a seamless technology integration in a mere five weeks. Carter Multifamily is now up and running on the platform and has started the process of integrating a new fund into the AIX platform.

“At the top level, we wanted our broker-dealer representatives to be able to use the AIX platform to process transactions as painlessly as possible,” explained Lisa Robinson, President of Carter Multifamily. “With the help of AIX, we have empowered our representatives, enabling us to sharpen our focus on raising equity, acquiring assets, and more quickly seizing on available buying opportunities.”

The industry average cycle time for current paper-based processes is approximately six weeks from the time an advisor initiates an order to when clearing and settlement is complete. AIX’s end-to-end straight-through processing can take as little as 72 hours, reducing the time it takes to complete a transaction by 90%. What’s more, the alternatives industry sees paperwork errors, or NIGOs, as high as 50%, according to industry estimates. AIX can deliver NIGOs under 10% — preventing 80% of these issues before they are even submitted for review.

“Processing an order was previously a very laborious and paper-intensive process. Simply put, with AIX, we can bring in capital faster than ever before, and the system has shown to drastically reduce cycle times between advisors and investors,” added Robinson.

Solutions that digitize only account opening and subscription processes by generating digital versions of signed subscription documents remain cumbersome, time-consuming, opaque, and prone to errors. AIX addresses the entire lifecycle, digitally connecting all parties involved and seamlessly transmitting data through respective stakeholders’ systems.

Momentum continues to grow for AIX. Carter Multifamily joins a growing list of forward-thinking investment sponsors available through the AIX platform. “Carter Multifamily’s efforts in making a transformational impact on its business is inspiring and serves as a reference point for the industry,” said Brad West, AIX COO. “With the AIX platform in place, Carter Multifamily is creating better experiences for its investment advisor representatives which will, in turn, help reduce error rates and ultimately see efficiency savings passed back to them and individual investors.”

About AIX:

Alternative Investment Exchange (AIX) is an end-to-end digital platform purpose-built to improve the processes related to buying, owning, and selling alternative investments. AIX’s technology reduces friction, mitigates risk, and creates value across all alternative investing stakeholder groups – wealth managers, asset managers, custodians, transfer agents, and fund administrators. By evolving beyond documents to make data the connective tissue between alternative investment players, AIX makes it easier to conduct business and accelerate industry growth. For more information, please visit or LinkedIn:

Media Contact:
Mark Tordik
+1 215-644-6503

Blue Vault Bowman Alts Week 2020 Kicks Off May 4

Blue Vault Bowman Alts Week 2020 Kicks Off on May 4

Blue Vault and Bowman Law are teaming up to drive dialogue about alternative investments at this unprecedented historical time. Join us for the inaugural launch of Alts Week May 4-8, 2020. This event will be broadcast virtually each day of the week. Hear from asset managers, fintech leaders, and industry veterans as we figure out together what to do, how to proceed, when to act, how to respond, and what our new normal will look like moving forward.

While attendance to this event is open to all industry professionals, some sessions are restricted to BDs and RIAs only.

Register today here.

Click here to view the agenda.


Real Estate’s Enduring Qualities, Part 2

Real Estate’s Enduring Qualities, Part 2

October 25, 2018 | Beth Glavosek | Blue Vault

From time to time, it’s good to revisit the basics about why commercial real estate (CRE) makes sense for many investors.
CRE is broadly defined as any property that can produce income. The most common categories of CRE include office, retail, industrial, medical, hospitality, multi-family, land, and other leasable commercial space.
In addition to providing diversification benefits for investor portfolios, real estate can deliver capital appreciation, current yield, and inflation hedging.
Capital Appreciation
Picture your own house and the potential for selling it for more money than you paid for it. CRE also offers the opportunity to invest in a hard asset that can increase in value. A real estate fund will receive capital appreciation if it sells the properties at a higher price than it paid for them. Investors may receive these gains when they sell their shares at a higher net asset value (NAV) or the fund reaches a liquidity event.
Current Yield
Real estate is considered by many to be an “income play.” Because real estate portfolios usually pay dividends, investors can expect to be paid quarterly or they can reinvest the dividends to purchase additional shares. With interest rates having been at or near historical lows for an extended period of time in recent years, traditional income-based investments such as investment grade corporate or municipal bonds haven’t provided the current income that many investors need. Real estate, as a complement, can fill that void.
Inflation Hedging
Real estate has a strong track record as an inflation hedge because its values and rents go up as inflation rises. Tenants who sign long-term leases generally have rent escalators built in so that rental income can keep pace with inflation. Standard lease terms also protect landlords from increasing costs because tenants usually pay expenses such as utilities, insurance, and maintenance. Shorter-term rents can be reset to market levels.
In short, with real estate’s “total return” emphasis (the opportunity for appreciation plus income), it can be an attractive and important part of many investors’ portfolios.

Diversification as One of Real Estate’s Enduring Qualities

Diversification as One of Real Estate’s Enduring Qualities

October 11, 2018 | Beth Glavosek | Blue Vault

From time to time, it’s good to revisit the basics of why commercial real estate (CRE) makes sense for many investors.
The opportunity for diversification is one of the main characteristics that has attracted investors to this type of investment through the years.
Diversification from the Stock Market
Most investors are familiar with the ups and downs of stocks, bonds, and mutual funds. The stock market is subject to the day-to-day “emotions” of the market based on investor sentiment, events of a political, economic or social nature, and any number of other factors. Real estate has its ups and downs too, but it’s generally considered to operate independently of the stock market. Therefore, investors can expect allocations to real estate to perform differently than other investments within their portfolios, thereby providing diversification.
Diversification by Sector
CRE also provides opportunities for diversification within the real estate sector itself. CRE is broadly defined as any property that can produce income. The most common categories of CRE include office, retail, industrial, medical, hospitality, multi-family, land, and other leasable commercial space. Investors can allocate to these sectors according to their investment objectives.
Further, investors can take advantage of growth opportunities created by societal or demographic trends. For example, industrial real estate is attractive at the moment because of the growth in e-commerce and the need for distribution facilities. As another example, investments in student and senior housing facilities have taken off because of population shifts that are fueling demand. In other words, there are many opportunities for even further diversification within real estate’s overall diversification benefits.
Diversification by Property Characteristics
Investors can also look at characteristics such as geographic location, quality of property, and tenant attributes when making allocations to real estate. Such considerations might include:

• Are the properties located in established major metropolitan markets or urban centers (New York, Los Angeles), or are they in up and coming markets spurred by population shifts (Orlando, Austin)?
• Where do the properties fall on a quality spectrum, from core (most conservative) to opportunistic (most risky, but perhaps with greater appreciation potential)?
• Who are the tenants? In addition to tenant quality and creditworthiness, what industries do they represent?

In future blog posts, we’ll look at real estate’s other characteristics that appeal to investors, such as the opportunity for capital appreciation, current yield, inflation hedging, and more.

Going the ‘Last Mile’

Going the ‘Last Mile’

August 29, 2018 | Beth Glavosek | Blue Vault

It’s no secret that e-commerce has taken off exponentially, and part of what drives consumers’ online shopping behaviors is the ability to receive products quickly.
Getting products delivered in as timely a manner as possible requires “reducing the friction.” In a broad sense, this friction includes any obstacle that would discourage customers’ purchases or cause them to abandon items in an online shopping cart.
Speed of delivery is certainly part of the buying decision process. That’s why e-commerce is a strong and growing industrial demand driver in the current market. Storing goods closer to the end user obviously decreases the amount of time that they’re spent in transit.
Demand projections
According to the latest report from the U.S. Census Bureau, e-commerce is growing in the double digits year over year. Each quarter since early 2017 has posted a 15%-16% increase over the same quarter the previous year.
With e-commerce sales currently accounting for 9.6% of all retail sales and growing, demand for industrial facilities continues to increase. In fact, it’s been said that online retail fulfillment centers require three times the square footage of warehouse space as traditional warehouses used to stock stores. In addition, bricks and mortar retailers are also investing in their supply chains to improve distribution channels.
Going the ‘last mile’
Supply chains have traditionally relied on ‘bulk’ suburban centers that are larger in size (typically more than 500,000 square feet) and are in regional or national/global locations outside urban core areas. These are your large buildings with high ceiling heights and deep truck bays.
While there’s still a need for bulk warehousing, light industrial buildings are providing more nimble coverage of heavily populated cities. These warehouses are closer in proximity to the urban core and are smaller, narrower buildings that can more easily deliver efficient last mile service. In most cases, the customer lives near the facility.
In an in-depth look at last mile delivery, Supply Chain Dive identified city warehouses as one of the trends and solutions for delivery demands and eliminating ‘friction’ between initial purchase to package drop-off.
The report cited Amazon Prime as a major disruptor and stated that “there were at least 58 Amazon Prime Now hubs in the U.S. last year for customers demanding same-day instant delivery. The growing trend is for companies to build or take advantage of this urban warehouse space and have easy access to products for fast customer deliveries.”

Recent activity among nontraded REITs
On March 9, 2018, Blackstone REIT acquired a 22-million square foot industrial portfolio for approximately $1.8 billion.  The Canyon Industrial Portfolio consists of 146 last-mile infill warehouses and distribution buildings concentrated in Chicago, Dallas, Baltimore/Washington DC, Los Angeles/Inland Empire and South/Central Florida. The tenants include Amazon, FedEx, DHL, Fiat Chrysler, and the US Government. The last-mile industrial market is a coveted asset class, outperforming the bulk industrial market thanks to the rising demand created by e-commerce, tighter supply chains and population growth in urban areas.
Cole Office & Industrial REIT (CCIT II) derives 12% of its lease income from It owns an Amazon distribution center in Petersburg, Virginia, and an Amazon distribution center in Ruskin, Florida.
Since January 2018, other nontraded REITs have completed nine transactions to acquire warehouse/distribution centers encompassing a combined 3.3 million square feet of leasable area. The REITs and the number of transactions include Black Creek Industrial REIT IV (3), RREEF Property Trust (3), Griffin Capital Essential Asset REIT (2), and Cole Real Estate Income Strategy (Daily NAV) (1).
Recent Activity Source: Blue Vault

SEC Receives an Earful on ‘Reg BI’

SEC Receives an Earful on ‘Reg BI’

August 15, 2018 | Beth Glavosek | Blue Vault

Ever since the long-debated Department of Labor (DOL) Fiduciary Rule faded away earlier this year, regulators have attempted to keep the spirit of the ruling alive by implementing a substitute rule.
In April, the Securities & Exchange Commission (SEC) introduced its Regulation Best Interest– or Reg BI – in an effort to establish a standard of conduct for broker-dealers and associated persons when they make recommendations to retail customers involving securities. The proposed standard of conduct is to act in the ‘best interest’ of the retail customer and not place the interests of the broker-dealer ahead of the interest of the retail customer.
As reported in Investment News, the proposal includes a best-interest standard for brokersnew disclosure requirements for brokers and investment advisers and financial adviser title reform; and an interpretation of the fiduciary standard that currently applies to investment advisers.
The SEC opened up a comment period to receive public feedback, and this period recently ended on August 7. Not surprisingly, such a regulation has been met with continued skepticism and resistance from those in the financial community who believe that it does more to confuse than clarify.
What are the controversies?
The following are among the proposed ruling’s controversial aspects:

Attempts to control ‘titles’ in the advisory relationship. While some responders support the SEC’s intent of helping retail investors better understand financial professional roles and services, they also believe that restrictions on the use of titles could create unintended consequences. For example, restricting the use of the term ‘advisor’ could lead to a proliferation of other titles that add to customer confusion.
 Reliance on disclosure to protect investors. As one advisor points out, clients are already not reading complicated prospectuses. So, relying on them to read complicated disclosure documents is probably not the answer to helping them better understand the terms of their financial advice.
Suitability and client choice. Opponents believe that the current proposal doesn’t do much to increase real investor protection, yet, like the old DOL ruling, it limits some advisors’ ability to provide a complete array of products and services. As one advisor puts it, “Diversity in product, service and compensation are good for the industry and ultimately for the client when used appropriately.”


A number of financial industry leaders responded to the call for comments, and their feedback can be read here or in a recent article published by Financial Planning.

Blog Post: Are Flat-Fee TAMPs a Boon to RIAs?

Blog Post: Are Flat-Fee TAMPs a Boon to RIAs?

August 2, 2018 | Beth Glavosek | Blue Vault

In an era in which fees have come under scrutiny, one major selling point of the Registered Investment Adviser (RIA) model is the channel’s commitment to transparency, lower fees, and the highest level of fiduciary care.
A Turnkey Asset Management Platform (TAMP) can offer advisers the opportunity to provide off-the-shelf portfolio solutions to clients with clear and straightforward pricing. A TAMP takes the guesswork out of the process of actually managing a portfolio, including selecting the individual investments, monitoring the portfolio, and making investment changes on an ongoing basis. The TAMP structure gives advisers the peace of mind of leaving portfolio management to an outside expert and allows them to focus on developing their own businesses and clients.
However, reasonable compensation is still an issue when it comes to determining fair pricing for the advice and services an adviser provides. While TAMPs have frequently followed an assets under management formula for determining compensation, the latest generation of TAMPs is taking fee simplicity to a new level with flat fee pricing. In a recent interview with Wealth Management, flat-fee TAMP creator Sheryl Rowling said, “the economics [of flat fees] should attract many smaller advisors who see assets under management-based fees eating into their bottom line. Fee-based advisors typically charge clients in the neighborhood of 1% of the assets they manage, so a third of that could be going to a TAMP if they use one. For small firms, the percentage is critical because they need every penny available to continue to grow their business.”
Fellow flat-fee TAMP creator Scott MacKillop would agree, and he also adds that the fiduciary standard benefits of using a flat-fee TAMP are substantial. “Because our fee is both a flat fee and a low fee, it’s very appealing in an environment where there’s a great deal of scrutiny of fees and pricing. When advisors are able to offer services on a flat-fee basis and create a pricing advantage for themselves and for a 401(k) plan too, it gives them an edge in the fiduciary world we’re in these days,” he recently told ThinkAdvisor.
Rowling, for one, is attracting a loyal following. Her home-built TAMP, InStrategy, was launched a little over a year ago and has already taken in more than $1 billion.

Why Are More RIAs Looking to Alternatives?

Why Are More RIAs Looking to Alternatives?

July 19, 2018 | Beth Glavosek | Blue Vault

Registered Investment Advisor (RIA) advisers have historically shied away from alternative investments because of the fees associated with them and a lack of access to alternatives on their investment platforms.
However, with adjustments in fee structures that make alternatives more permissible for RIAs, the tides are turning. Statistics show that adoption of alternative investments by RIA advisers is trending upward and showing no signs of slowing down. According to Investment News, a survey of 250 RIAs with at least $500 million in assets under management conducted late last year showed that advisers planned to tap alternatives to help hedge the markets in 2018. In fact, 45% of advisers said that they would increase allocations to alternatives, and 48% said that they would at least maintain current allocations.
Factors such as low interest rates, low yields from traditional instruments such as bonds, and stock market jitters have led advisers to seek new ways of generating returns. In a recent interview with Financial Times, Brendan Lake, president and chief executive at PPB Advisors, said, “Interest in alternatives is up in part because many RIAs and their clients see listed equity as highly priced. Others fear an equity market downturn and are seeking protection in products with a lower correlation to stock indices.”
Some advisers believe that adding alternatives to a portfolio allows clients to be less dependent on “good” performance from stocks and bonds, in light of the fairly recent memory of stock market conditions just 10 years ago. With the potential to have better downside protection during market downturns, alternative investments can either replace equities as a means of generating capital appreciation, or they can replace bonds’ ability to deliver steady distributions and a return of principal. In addition to market defensiveness, many believe that historical data have shown that more diverse portfolios have performed better over the past 25 years than less diverse ones.1
In any case, it will be interesting to see if projections play out, and more retail investors have exposure to alternatives this time next year, thanks to greater adviser access and endorsement of these investments.

1Deborah Mason, “Advisors turn to alternative investments for clients,” CNBC, October 11, 2017.


Industrial: Real Estate’s Hottest Sector?

Industrial: Real Estate’s Hottest Sector?

July 5, 2018 | Beth Glavosek | Blue Vault

According to a recent Wall Street Journal article, development of industrial space in the U.S. is at a 10-year high, and there are no signs of a slowdown any time soon. In fact, roughly 247 million square feet of new industrial space is expected to be delivered this year, the most since 2007, while vacancies are at a 17-year low, according to the WSJ.

Two factors – growth in e-commerce and population growth – have created strong demand for industrial real estate. In an article for National Real Estate Investor, a spokesperson for Jones Lang LaSalle says that, “E-commerce sales have increased by 16% year-over-year and now account for 9% of all U.S. retail sales. E-commerce also accounts for about 12% of industrial leasing activity and an additional 22% to 30% of indirect leasing through closely tied logistics, distribution and 3PL channels.” He goes on to say that we are just seeing the beginning of exponential growth in e-commerce, which will continue to have a significant impact on industrial development for the next few years. One of the biggest drivers for new industrial projects is the need to put distribution facilities closer to consumers, he notes.

In a similar vein, population growth is another factor causing certain markets to expand. A higher population means more shoppers buying goods online. Supply constraints in these markets cause rents to go up, which bodes well for industrial investors.

Industrial real estate includes both large, bulk warehouses and smaller, light industrial properties. In general, a bulk industrial property is a larger building on the outskirts of town with more than 500,000 square feet, higher ceiling heights, and wider truck court depths. Light industrial buildings are closer in proximity to urban core areas, and they’re smaller buildings that are ideal ‘last-mile’ facilities to get packages to urban consumers.

According to Nasdaq, a recovering economy, healthy job market, tax reforms, a healthy manufacturing environment, and high business inventories are likely to drive demand for warehouse and logistics real estate, which will provide significant impetus to industrial REITs.

Are Hybrid RIAs Changing the Industry?

Are Hybrid RIAs Changing the Industry?

June 19, 2018 | Beth Glavosek | Blue Vault

In the last blog post, we talked about some differences between Independent Broker Dealers, Registered Investment Advisers, and Wirehouses, as well as the types of advisors associated with each firm.

RIAs have generally been regarded as completely different models from broker/dealers and wirehouses for providing financial products and advice. For one, RIAs uphold fiduciary standards in terms of acting in the best interest of clients before the best interests of the firm. They also are considered to be “fee-based,” that is, they are compensated based on a client’s assets under management, not by commissions.

However, that traditional divide may be changing with the advent of the Hybrid RIA. A Hybrid RIA is registered as both an RIA and a broker/dealer. As mentioned in previous posts, RIAs must register with either the Securities and Exchange Commission or their state regulators, depending on their assets under management. Broker/dealers register with FINRA. A Hybrid RIA’s dual registration allows its advisors to operate both a fee- and a commission-based practice.

This can open up new channels of business, including services tailored to high-net-worth clients seeking specific benefits in their overall wealth strategy. For example, such a client might have tax considerations that would make certain alternative investments attractive. An advisor connected with a Hybrid RIA is prepared to offer those strategies, which many times compensate in the form of upfront fees and commissions.

As one Hybrid RIA spokesperson said in a recent Financial Planning magazine article, his firm has made recent platform changes in order to retain brokerage services while aligning relationships with firm and client needs. “We have a lot of clients who are fee-based clients that are very interested in investment products that you can only get through a broker/dealer,” he says.

The World of Investment Advice Professionals

The World of Investment Advice Professionals

June 6, 2018 | Beth Glavosek | Blue Vault

In the last blog post, we offered an overview of the types of firms that sell alternative investments. Within the channels of Independent Broker Dealers, Registered Investment Advisers, and Wire Houses, investors can expect to work one-on-one with an investment professional who will provide customized investment advice, financial planning services, and/or brokerage services (such as buying or selling stock or bonds).
Investors may encounter those who refer to themselves as registered representatives, while others are registered investment advisers, financial planners, financial advisors, or brokers. They also may, depending upon their level of training or certification, hold special designations such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA). But, what does it all mean, and what are the similarities and differences?
The Financial Industry Regulatory Authority (FINRA) intentionally differentiates advisers (spelled with an “e”) because it says the laws that are specific to governing this type of investment professional spell the title this way. According to FINRA, “Although the terms sound similar, investment advisers are not the same as financial advisors and should not be confused. The term financial advisor is a generic term that usually refers to a broker or a registered representative. By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission (SEC) or a state securities regulator. Common names for investment advisers include asset managers, investment counselors, investment managers, portfolio managers, and wealth managers.”

Key terminology

An investment adviser representative (IAR) is someone who works for and gives advice on behalf of a Registered Investment Adviser (RIA) firm. Investment advisers who manage $110 million or more in client assets must register with and be overseen by the SEC. Advisers who manage less than $110 million must register with and be overseen by state securities regulators.
A registered representative is primarily a securities salesperson and may also go by such generic titles as financial consultant, financial advisor, or investment consultant. He or she works for a broker, stockbroker, broker/dealer, or other brokerage firm. Broker/dealer firms must register with the SEC and be members of FINRA. Individual registered representatives must register with FINRA, pass qualifying examinations, and be licensed by their state securities regulators. 


It’s worth noting that no special training or designation is needed in order to call oneself a ‘financial planner.’ A Certified Financial Planner, however, is someone who has taken extensive coursework and received certification through the CFP Board. The CFP Board notes, as a word of caution to investors, that financial planners are not regulated as a separate and distinct profession, and are not required to meet basic competency or ethical standards.

Overview of Sales Channels

Overview of Sales Channels

May 23, 2018 | Beth Glavosek | Blue Vault

The alternative investment industry has long relied on the Independent Broker Dealer (IBD) channel for its sales; however, a broader array of financial firms are embracing the benefits of income and non-correlation that these products can offer investors seeking diversification into nontraditional asset classes.
While alternatives may have gotten their traction through the IBD channel, today, more and more Registered Investment Advisors (RIAs) and wirehouse firms are signing on to offer these products thanks to changes in fee structures that now allow them to participate in alternatives.
Here are some important distinctions between each of these sales channels:

IBD firms’ financial advisors operate as independent contractors. The broker dealer supports the advisor’s independence but provides back office and transactional services. The advisor has the opportunity to earn commissions on the sale of investment products.
The RIA channel includes independent and mostly fee-only advisors. They are usually not compensated with commissions on the sale of securities, and they are committed to acting with ‘fiduciary responsibility’ for their clients.
Wirehouses are brokerage firms that have branch offices with advisors who are employed and compensated by the wirehouse itself.


Because RIAs and wirehouses are relatively new to the alternative investments industry, there’s much that we can explore about the rate at which they’re adopting ‘alts,’ who they are and how they operate, and how they’re compensated for the investments that they recommend. We’ll explore these topics in future blog posts.

Will Real Estate Investors Benefit from Tax Changes?


Will Real Estate Investors Benefit from Tax Changes?

December 20, 2017 | Beth Glavosek | Blue Vault

closeup money in male hands

Now that the “Tax Cuts and Jobs Act” has been passed by Congress and signed by President Trump, investors in real estate investment trusts (REITs) and other alternative real estate investments may stand to benefit.

Tax benefits are part of REITs’ appeal, so it’s fair to wonder how any changes in tax code would affect these investments. Here’s a short list of some of the implications.

Reduction in taxes on dividends/distributions

REIT shareholders who now pay the top income tax rate of 39.6% on dividends they receive would see that rate drop to 29.6%, according to Nareit, formerly the National Association of Real Estate Investment Trusts. “Clearly this is a deduction that will lower the overall tax rate for individuals who invest in REITs,” said Dianne Umberger, REIT lead for Ernst & Young’s National Tax Department, as quoted in the Wall Street Journal this week. Note: the tax rate on any capital gains remains unchanged.

Like-Kind Exchanges Remain for Real Estate

The bill in its current form preserves the tax advantages of 1031 (like kind) exchanges for real estate properties. This is good news for those who need to relocate or upgrade into assets that better meet their business needs. However, 1031 benefits have been eliminated for other categories of investments like art and collectibles.

Asset Depreciation Schedules May Spur New Construction

According to Reis, businesses will be able to immediately expense many asset purchases; after five years of 100% expensing, the rate will phase out at 80%/60%/40%/20% rates over the ensuing four years.

As the implications from this tax bill unfold, Blue Vault will report updates as we receive them.

How an Attack on a Nontraded REIT Sponsor Made a Hedge Fund Manager $60 Million


How an Attack on a Nontraded REIT Sponsor Made a Hedge Fund Manager $60 Million

Full-length confident person in formal suit. A sketch of New York city and forex chart on the background. A concept of the asset management.

December 18, 2017 | James Sprow | Blue Vault

When Blue Vault began seeing signs that United Development Funding V (UDF V), a nontraded REIT program sponsored by United Development Funding, L.P. (UDF) in Dallas, Texas, was not able to file the 10-K for 2015, it naturally raised suspicions that all was not right with the REIT or the REIT’s sponsor.  A previous nontraded REIT program from UDF, United Development Funding IV (UDF IV) had listed its common shares on the NASDAQ in June 2014, trading in the range of $16 to $20 per share.  When the news broke that the FBI had executed search warrants at UDF’s corporate offices on February 18, 2016, it seemed to confirm that where there was smoke, there was fire, and that rumors and web postings that had accused UDF of being a “Ponzi scheme” might have some merit.  On February 18, 2016, the day of the FBI raid, UDF IV traded below $4 per share, and trading was halted on the NASDAQ. 

On November 28, 2017, United Development Funding, L.P. and its related companies filed a lawsuit in Dallas County, Texas, accusing hedge fund manager J. Kyle Bass and his closely held company Hayman Capital Management, L.P., of perpetrating a “short-and-distort” scheme by spreading false and damaging information about UDF in order to drive down the company’s stock price and profit by covering their short positions by buying shorted shares at much lower prices. 

In the 61-page lawsuit filing, UDF lays out their case in great detail, documenting how, allegedly, J. Kyle Bass conspired to create a false narrative, using false identities, creating websites that purported to uncover negative facts about UDF, and accumulating a huge short position in UDF IV’s shares to profit as the false narratives shook investor confidence and caused panic selling.  Bass’ short position reached over 4 million shares prior to December 10, 2015.  By December 15, 2015, UDF IV’s share price had dropped almost 50% in five days.  By February 12, 2016, UDF IV’s shares were down to $6.67, and trading was halted on the NASDAQ on February 18 with the price below $4 per share.  Bass and his company closed out their massive short position by October 27, 2016, after posting a continual flurry of negative articles about UDF on a website they had created at “” 

The lawsuit filing by UDF vs. J. Kyle Bass makes fascinating reading, almost like a novel.  Blue Vault will continue to follow the case as it proceeds, but for now, it can be said that there are definitely two sides to the United Development Funding story, and there may indeed be a strong case made that an unscrupulous hedge fund manager perpetrated a fraud against a legitimate REIT in order to profit from their fall, harming many investors in the process.    

The full lawsuit document is available at:, using the Case No. CC-17-06253-B.

It will make fascinating holiday reading!

How Interval Funds Compare with Traditional Closed-End Funds


How Interval Funds Compare with Traditional Closed-End Funds

December 7, 2017 | Beth Glavosek | Blue Vault

Balance concept

Last week, we looked at the similarities between closed-end interval funds and mutual funds. Like mutual funds, interval funds offer the transparency, regular valuations, and investor protection elements of the 1940 Act.

As a recap, both interval funds and mutual funds offer shares continuously that are priced daily based on net asset value (NAV). While open-end mutual funds can be redeemed daily, interval funds offer redemptions, as the name implies, at specific intervals such as quarterly or monthly. 

So, what are closed-end funds, and how are they similar and different from interval funds? Closed-end funds first became available in 1893, 30 years before open-ended mutual funds were created. Brought under federal regulation by the 1933 Securities Act, closed-end fund rules were further formalized under the Investment Company Act of 1940. Unlike open-ended funds, closed-end funds have a fixed number of shares to sell. Once the initial public offering is complete, shares may be bought and sold on public exchanges (like the NYSE). Share pricing may be above or below actual underlying NAV, depending upon market demand.

Similarities Between Closed-End Funds and Interval Funds

  • Allocations to illiquid holdings. Both closed-end funds and interval funds may allocate in unlimited amounts to illiquid assets.
  • Daily valuations. Unlike some unlisted securities that don’t provide more frequent valuations, both of these offer transparency through daily pricing.
  • Unrestricted access to both private and public investments. Open-ended funds are only allowed limited access to private investments, whereas closed-end funds and interval funds may allocate freely to private investments.

Differences Between Closed-End Funds and Interval Funds

  • Offering of shares. Interval funds make a continuous offering of shares, while closed-end funds offer shares one time through an initial public offering (IPO).
  • Exchange trading and pricing. Interval funds sell their shares directly to the public with direct redemptions available at NAV. Closed-end fund shares may be bought and sold on an exchange only at market pricing that may be more or less than NAV.
  • Frequency of redemptions. Closed-end fund holders may buy and sell shares at any time based on trading volume. Interval funds usually restrict redemptions typically to quarterly intervals.

In upcoming posts, we’ll continue to look more closely at interval funds and what they have to offer.

An Introduction to Interval Funds


An Introduction to Interval Funds

November 29, 2017 | Beth Glavosek | Blue Vault

Investment on Pocket Watch Face. Time Concept.

Closed-end interval funds are a relatively new way for investors to participate in alternative investments like real estate. But what are they, and how are they different from other real estate offerings?

Interval funds are SEC-registered closed-end funds that provide continuous offerings of their securities. They usually price and sell their shares daily, but do not list them on an exchange. What does this mean from a layperson’s perspective? In general, it means that investors can access the real estate and other alternative asset classes offered traditionally by closed-end funds without committing their money for an undetermined amount of time.

Interval funds are basically very similar to mutual funds, but with a few differences.

What’s in Common with Mutual Funds

Interval funds offer shareholders and financial professionals the transparency, valuations, and investor protection elements of the 1940 Act. Some of the common elements between mutual funds and closed-end interval funds are:

  • Continuous offering of shares. Interval funds are similar to mutual funds in that they continuously offer their shares at a price based on net asset value (NAV). Unlike closed-end funds and other unlisted securities, there is not a single IPO price, and there are not specific periods in which shares are offered for the public to buy.
  • Regular valuations. Interval funds offer daily pricing that is reflective of regular valuations going on behind the scenes, much like mutual funds.
  • Not traded on exchanges. Both are not traded on stock exchanges. That means that you can buy and sell shares directly from the mutual fund or interval fund company without having to go to a stock exchange (like the NYSE).

Differences from Mutual Funds

  • Allocations to illiquid holdings. Mutual funds are NOT allowed to hold more than 15% of their assets in investments that cannot be readily liquidated or sold. This measure is intended to maximize investors’ ability to get in and out of the fund. However, closed-end interval funds are allowed more latitude in this area and may allocate much more to assets that cannot be readily sold.
  • The ability to sell shares daily. While mutual fund holders can buy and sell their shares on a daily basis as much as they like, most interval funds restrict buying and selling to a quarterly basis (some only offer to repurchase semi-annually or annually), and there are limits to selling shares.

In upcoming posts, we’ll look at some other characteristics of closed-end interval funds and why they may make sense for some of today’s investors.

SEC Filings Part 1: What are All of Those Forms?


SEC Filings: What are All of Those Forms? 

November 10, 2017 | Beth Glavosek | Blue Vault

The U.S. Securities and Exchange Commission (SEC) logo hangs on a wall at the SEC headquarters in Washington, in this June 24, 2011, file photo.  As the U.S. Securities and Exchange Commission seeks to become a more formidable force in the courtroom, a string of trial defeats in the past six months has exposed a weak spot: witness testimony. In four of the five trials that the securities regulator recently lost, the jury or judge were not convinced by the witnesses brought in by SEC litigators, according to court transcripts, rulings and interviews with defense lawyers. While there were also other factors influencing the verdicts, some legal experts said the issues with witness credibility were significant and reflect the need for SEC litigators to better vet and prepare their witnesses - or drop cases where they aren't strong enough. To match story Insight USA-SEC/COURT     REUTERS/Jonathan Ernst/Files    (UNITED STATES - Tags: CRIME LAW POLITICS BUSINESS LOGO)

Reading companies’ Securities and Exchange Commission filings probably doesn’t rank as high on the fun factor as say, watching a good movie or going to a concert. However, they do serve an important purpose.

Finding valuable information

The SEC requires public companies, “to disclose meaningful financial and other information to the public, which provides a public source for all investors to use to judge for themselves if a company’s securities are a good investment.”

Common reports that provide clues to a company’s health include:

  • Form 10-Q (contains unaudited quarterly financial statements)
  • Form 10-K (contains audited annual financial statements)
  • Form 8-K (current information including preliminary earnings announcements)
  • Registration statements, including Form S-1. A registration statement is required for new issuers under the Securities Act of 1933. This form number can vary according to the type of company. Nontraded REITs file S-11 statements, while Business Development Companies and Interval Funds file N-2s.

Offering documents – also known as prospectuses – are also filed with the SEC. Prospectuses are usually part of the registration statement or may be filed as supplemental documents or “supplements.” 

Other common filings

A post-effective amendment is required if a continuous offering makes fundamental or material changes after the effective date of the registration statement.

Companies are required to send proxy statements prior to any shareholder meeting, whether an annual or special meeting. The information contained in the statement must be filed with the SEC before soliciting a shareholder vote on any matter related to company business and must disclose all important facts that shareholders need to know in order to vote.

For more information

For additional guidance from the SEC on how to read company filings, check out their Beginner’s Guide to Financial Statements.

In future posts, we’ll look at how you can use SEC filings to find answers to specific questions and concerns you may have before or after investing in a company.

SEC Filings Part 2: A Closer Look at Some Key Issues

The Impact of Amazon on Grocery Sector and Phillips Edison Grocery Center NTRs


The Impact of Amazon on Grocery Sector and Phillips Edison Grocery Center NTRs

October 20, 2017 | James Sprow | Blue Vault


Vegetables at a market stall

The June 16, 2017 announcement of the acquisition of Whole Foods by Amazon sent shock waves through the grocery industry. From June 1 through June 16, Kroger (KR), a grocery chain with 2,460 stores in the U.S., lost 26% in the value of its common stock. SuperValu Inc. (SVU), with 2,000 stores in the U.S., lost 20% in the value of its common stock over that same period. Even Wal-Mart (WMT), not nearly as dependent upon the grocery business, lost 6% in the value of its common stock over those 15 days. Was this attributable to the Amazon announcement? By comparison, the S&P 500 Index was up 0.1% for the same period, indicating that yes, indeed, Amazon’s entry into the grocery business was perceived by investors as damaging to the prospects for several large, publicly traded grocery chains.

For nontraded REIT investors, the two NTRs that are most closely associated with the grocery business are Phillips Edison Grocery Center REITs I (PEGCR I) and II (PEGCR II). These companies have investment strategies that focus on grocery-anchored, neighborhood and community shopping centers “that have a mix of creditworthy national and regional retailers that sell necessity-based goods and services in strong demographic markets throughout the United States” according to their annual reports.

How dependent are the two NTRs advised by Phillips Edison NTR and sponsored by Phillips Edison Limited Partnership on the lease revenues from large grocery chains such as Kroger? The following table gives an overview of the NTR portfolios and their tenant concentrations.

Screen Shot 2017-10-20 at 7.38.15 AM
Source:  SNL


The Phillips Edison NTRs are well-diversified in their tenant mix, with no single tenant contributing more than 8.8% of the REIT’s lease revenues. PEGCR I has 52.9% of its leased square feet in the grocery industry as of June 30, 2017, and that percentage was 52.7% for PEGCR II. The weighted average remaining lease terms for PEGCR I and PEGCR II were 5.4 and 5.8 years, respectively as of Q2 2017. As with other shopping centers, however, the economic success of the anchor stores has spill-over effects on other tenants.

The most recent analyst ratings for Kroger according to were upgrades, but Kroger’s stock is down 32% from June to October 17. Clearly, investor confidence in the long-term prospects for Kroger and other grocery chains has been shaken.

Necessity-based retailing, such as the grocery-anchored properties in the Phillips Edison NTR portfolios, has been one bright spot in the retail sector over the last several years. While other retailers have been reeling from the impacts of e-commerce in general and Amazon specifically, the grocery business has been spared some of the worst effects due to the nature of its products and their customers’ preferences for in-store shopping. However, most grocery retailers are also responding to the e-commerce trend by adding on-line shopping and pick-up and delivery options to their platforms. Amazon’s entry into the sector through its acquisition of Whole Foods will likely accelerate this trend.

On May 9, 2017, the board of directors of PEGC REIT I reaffirmed its estimated value per share of common stock of $10.20 based substantially on the estimated market value of its portfolio of real estate properties as of March 31, 2017, up from its $10.00 offering price. The board of directors of PEGC REIT II established an estimated NAV per share of $22.75 on May 9, 2017. The stock was originally offered at $25.00 per share.

On September 1, 2017, Phillips Edison Grocery Center REITs I and II entered into agreements that terminated all remaining contractual and economic relationships with American Realty Capital.



Learn more about Phillips Edison & Company on the Blue Vault Sponsor Focus page.

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America’s Data Centers Deliver Results


America’s Data Centers Deliver Results

October 13, 2017 | Beth Glavosek | Blue Vault

Data Center with 4 rows of servers

Given the destruction caused by recent hurricanes, it’s impressive to learn that internet service and the cloud remained intact and resilient, even as millions of people lost power or saw their homes and businesses flooded.[1]

What makes this connectivity possible, even after catastrophic storms, is the humble data center. Data centers house and maintain back-end information technology (IT) systems and data stores—mainframes, servers and databases – on behalf of major enterprises. As one technology executive puts it, “Data centers, to me, are 362 days of boredom [each year].” But, when they’re needed most is when they really shine.

Where are America’s data centers?

According to Data Center Knowledge, data centers historically have been located in remote locations because of cities’ expensive land and energy costs. However, they have been moving closer to end users in order to reduce ‘lag time’ in connectivity. After a push to build data centers closer to metro areas such as New York City, Los Angeles and San Francisco where there is a large concentration of customers – known as the ‘data center clustering effect’ – cloud computing gained momentum and data centers moved to locations where their tenants’ businesses were located, often outside of large cities. Today, data centers are increasingly being built in secondary and tertiary markets.[2]

How data centers weather disaster

Data centers are specifically designed to withstand external forces like storms or ice. In order to maintain industry certification through the Seattle-based Uptime Institute, they must demonstrate that they can keep running after a “plug is pulled.” When electricity is lost, data centers have powerful diesel generators that kick into gear. Other important considerations are building above the 500-year floodplain and having staff who are prepared to shelter in place. Sites are frequently stocked with thousands of gallons of diesel fuel for their generators, food and water, emergency medical kits, showers, bunkrooms and flares.[3]

Investing in data centers

According to the National Association of Real Estate Investment Trusts (NAREIT), there are six REITs that are currently focused on data center holdings. According to NAREIT, data centers led the entire REIT market’s performance in the first four months of 2017 with an 18.03% total return. Forbes reported in September that the average year-to-date total return for all Data Center REITs was 29.1%. Among nontraded REITs, Carter Validus Mission Critical REITs I and II have focused their property investments in data centers as well as health care facilities. The two nontraded REITs own 20 data centers each.

As e-commerce and other driving factors continue to fuel the demand for data, it’s clear that data centers will continue to play a very important role in business continuity and keeping America running even through challenging circumstances.

[1] James Glanz, “How the Internet Kept Humming During 2 Hurricanes,” The New York Times, September 18, 2017.

[2] Loudon Blair, “Finding Strength in Numbers: The Data Center Clustering Effect,” Data Center Knowledge, October 11, 2017.

[3] James Glanz, “How the Internet Kept Humming During 2 Hurricanes,” The New York Times, September 18, 2017.

Do We Need to Re-Think Inflation Expectations?


Do We Need to Re-Think Inflation Expectations?

October 12, 2017 | James Sprow | Blue Vault

Growth Rise Up Chart

One big question that Fed officials and economists generally are grappling with is “What’s happened to inflation?” The standard benchmark that Federal Reserve policy makers have used is an annual consumer price index rising at 2%. The persistence of inflation rates below the 2% target has observers scratching their heads and considering the possibility that fundamental changes in the U.S. economy, and indeed in the world economy, have rendered the 2% expectation obsolete.

In an article in, Zachary Karabell states, “The economic truths of the past may or may not be true anymore.” As the economy improves and companies start hiring, unemployment falls and wages are supposed to go up, pushing up prices and increasing inflation. The Federal Reserve has recently been assuming that some economic conditions were simply taking longer to “return to normal.” Both Karabell and members of the Federal Reserve’s Open Market Committee are asking, “What if the stubborn lack of inflation is not just a short-term blip?”  

The minutes of the Federal Open Market Committee’s September meeting reveal much discussion and even some disagreement about the long-term trajectory of expected inflation:

“Based on the available data, PCE price inflation over the 12 months ending in August was estimated to be about 1-1/2 percent, remaining below the Committee’s longer-run objective. In their review of the recent data and the outlook for inflation, participants discussed a number of factors that could be contributing to the low readings on consumer prices this year and weighed the extent to which those factors might be transitory or could prove more persistent.”

“Some participants discussed the possibility that secular trends, such as the influence of technological innovations on competition and business pricing, also might have been muting inflationary pressures and could be intensifying. It was noted that other advanced economies were also experiencing low inflation, which might suggest that common global factors could be contributing to persistence of below-target inflation in the United States and abroad.”

For now, the Fed will continue to watch their two key indicators, the unemployment rate and inflation, and they expect economic conditions to “evolve in a manner that would warrant gradual increases in the federal funds rate and that the federal funds rate was likely to remain, for some time, below levels that were expected to prevail in the longer run.” 

Clearly, if the fundamental forces that influence the rate of long-term inflation, both in the U.S. and globally, have changed, then the conventional thinking of the Fed and the financial markets may need to adjust to a new reality of lower long-term trends in inflation.

SEC Working Toward a Proposal on a New Fiduciary Rule


SEC Working Toward a Proposal on a New Fiduciary Rule

October 4, 2107 | Beth Glavosek | Blue Vault

United States Capitol Building, Washington, DC

On Wednesday, October 4, in a Capitol Hill appearance, Securities and Exchange Commission (SEC) Chairman Jay Clayton told lawmakers that the agency is drafting its own proposal for a fiduciary rule, according to Investment News.

The commission has been accepting comments, and Clayton told the House Financial Services committee that, “We’re going to work with the Department of Labor. However, if this were easy, it would already have been fixed.”

According to Investment News and Barron’s, Clayton reiterated past comments insisting that such a rule must preserve investors’ choice to use a broker or advisor, be clear, apply to retirement and non-retirement accounts, and involve cooperation between the SEC and the Labor Department.

Clayton said that he’s confident that the SEC can create a rule that meets those standards and protects investors in a way which they understand. While not providing a timeframe, he reassured Republican lawmakers that opponents’ concerns about the DOL fiduciary rule will be addressed.



Delay in Fiduciary Rule Implementation Causing Issues

ALERT: DOL Fiduciary Rule Delay Published

House committees ready two assaults on DOL fiduciary rule this week


The Art of Wholesaling


The Art of Wholesaling

September 28, 2017 | Beth Glavosek | Blue Vault

Euro coins. Euro money. Euro currency.Coins stacked on each othe

In an upcoming blog series, Blue Vault is going to examine the role of the wholesaler in the financial services industry.

It’s been said that wholesalers are the ‘muscle’ behind the billions of dollars of fund shares sold through advisors and bought by investors each year. A wholesaler is someone who represents a product sponsor and its offerings. Known for being ‘road warriors’ who travel the country, wholesalers visit advisors and Broker Dealers to educate them about the benefits of the sponsor’s offerings and the unique value they bring to the marketplace of investments.

According to Evan Cooper of Investment News, “knocking on advisors’ doors is a tough (although potentially very lucrative) job that typically gets little attention and not as much respect as it deserves.”

So, what does a wholesaler do, in addition to convincing advisors and Broker Dealers to add an offering to their sales platforms? Because they’re on the front lines of representing product sponsors, wholesalers also must:

  • Understand the offering thoroughly and how it can benefit investor clients
  • Have thorough knowledge of competing products and how their offering stacks up against them
  • Provide value-added knowledge about the marketplace and what it takes for an advisor to meet client needs
  • Collaborate and share educational content, including offering opportunities for advisors of all kinds to get together and share ideas

In the coming weeks, we’ll talk with some successful wholesalers and learn more about their habits, what their typical days are like, how they stay at the top of their game, and what it takes to succeed in the world of financial wholesaling.

How Are Markets Rebounding from Harvey?


How Are Markets Rebounding from Harvey?

September 22, 2017 | Beth Glavosek | Blue Vault


As the city of Houston continues its recovery after Hurricane Harvey and its catastrophic flooding, analysts are starting to size up the long-term implications on the real estate market, real estate investments, and the overall economy.

Here are a couple of areas to watch:

CMBS Offerings and Office Sector
Last month, Bloomberg Markets reported some key findings on the hurricane’s impact on commercial mortgage-backed securities (CMBS). Morgan Stanley estimates that Houston-area offices, malls, and hotels support nearly $9 billion of the loans packaged since the financial crisis. Flood damage could jeopardize the payoff of about $1.13 billion in loans maturing in the next 12 months, according to the Bloomberg article and analysts at Morningstar Credit Ratings.

In the immediate term, there are elevated expenses for office owners and landlords related to cleanup and any damage not covered by insurance, according to Bloomberg Intelligence analyst Jeffrey Langbaum. There shouldn’t, however, be any near-term impact on revenue for buildings if they are leased but, “if companies end up moving, or go under, there will be longer-term disruption,” he says. Large office buildings could struggle if they aren’t able to show or renovate their spaces in preparation for lease expirations.

REITs with significant exposure to Houston could see some effects if there are near-term tenant and lease risks related to the above issues. However, according to Blue Vault’s research, only one nontraded REIT has suffered a casualty loss due to a hurricane, and that was a relatively minor insurance claim of just a few million dollars for a large portfolio. Because most nontraded REITs have portfolios that span the nation and even the world, Blue Vault believes that the diversification available in these portfolios offers great protection against localized disasters. 

Energy and Fuels
According to IHS Markit, an information and analytics company whose data includes the energy industry, 15 of the 20 affected refineries in the Gulf Coast energy complex were at or near normal operating rates as of September 19. While around 1.0 million b/d of distillation capacity (5% of US total) is estimated to still be offline, steady progress appears to have been made to be operating normally in the near future. IHS Markit has observed that refined product markets have calmed considerably and that the NYMEX RBOB spot price was essentially back to its pre-Harvey level.