SmartStop’s Latest Nontraded REIT Eliminates Acquisition Fees

September 11, 2018 | James Sprow | Blue Vault

Strategic Student & Senior Housing Trust Inc., a publicly registered non-traded real estate investment trust sponsored by SmartStop Asset Management, has amended its advisory agreement with its advisor, SSSHT Advisor, LLC.

In the amendment to its advisory agreement dated September 6, 2018, the company will eliminate acquisition fees and increase the asset management fees payable to its advisor, from an annual rate of 0.625 percent to 0.8 percent of its average invested assets. According to the REIT’s offering prospectus filed April 26, 2018, the advisor previously received acquisition fees of 1.75 percent of the contract purchase price of each property acquired by the REIT.

Both the acquisition fees and the asset management fees paid by the REIT to the advisor are increased by the use of leverage. The elimination of the acquisition fees and raising of the asset management fee have the effect of spreading the payment of fees from the date of the acquisition of assets to subsequent years. The 17.5 basis points increase in the annual asset management fee means the advisor is compensated over the holding period of the REIT’s assets rather than up front, and given the relatively small increase in the asset management fee rate, shareholders stand to benefit. While Blue Vault’s Nontraded REIT Fee Study identifies asset management fees as the most impactful fees on shareholder rates of return over the life of a nontraded REIT, this change should be a net positive for shareholders.

On August 31, 2018, the REIT closed on the purchase of an existing 286-unit senior housing community, known as Courtyard at Mt. Tabor, located in Portland, Oregon, for a total purchase price of $92 million. The Courtyard Property is comprised of independent living (201 units), assisted living (73 units) and memory care (12 units). The Courtyard Property also contains developable land intended to be developed for an additional 23 units of memory care. The REIT incurred approximately $1.6 million in acquisition fees owed to its advisor in connection with the acquisition.

Strategic Student & Senior Housing Trust, which invests in income-producing student housing and senior housing real estate assets, owns a portfolio of four senior housing communities and two student housing communities purchased for approximately $275 million. The company sold approximately $93 million in Class A shares in its private offering which ended in March 15, 2018, and its public offering was declared effective in May 2018. As of August 8, 2018, the REIT had raised $0.5 million in its public offering.

Sources:  SEC, Blue Vault

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