Going Public
Boston Capital offers an unlisted multifamily REIT. For several years, much has been written about firms such as Wells Real Estate Funds and Inland Real Estate Corp. forming unlisted REITs to scoop up office and industrial projects. These firms pool buyers together to buy properties and then earn income on the fees from the management, acquisition, rehab, and disposition of these properties.
But now, after almost three years of work, Boston Capital has launched an unlisted multifamily REIT, which already includes 10 properties and expects to raise $1 billion in equity investment for 70 or 80 more properties, according to Richard DeAgazio, executive vice president of Boston Capital and president of Boston Capital Services.
The bulk of Boston Capital’s portfolio is in the affordable sector, but the firm thought the REIT route would be its best vehicle for market-rate ownership. “We have a very valuable distribution arm through Boston Capital Securities, which has some 300 broker-dealer firms across the country,” says Richard DeAgazio, executive vice president of Boston Capital and president of Boston Capital Services. “It seemed very natural that we form a REIT to own market-rate properties and be able to raise this money through our distribution channel. The ability to raise money in the REITs is much easier. It doesn’t have the stigma limited partnerships have.”
But unlisted REITs have been criticized in the past for the fees they charge their investors. Boston Capital’s are in the lower to middle half of REITs, says spokesman David Gasson. “Typically they get sold through different brokerage networks where they’re taking a big front-end load,” says Craig Leupold, principal at real estate consulting firm Green Street Advisors in Newport Beach, Calif. “In the Wells deals, they’re charging 7 [percent] to 15 percent once all the fees get charged.”
Leupold isn’t sure why there hasn’t been an unlisted REIT focused solely on apartments until now, but he has an idea: “There are alternate investment vehicles [for multifamily] available in private market, whether it be limited partnership deals or a TIC partnerships or even putting a group of doctors and lawyers together to buy a deal. The multifamily marketplace is much more competitive and liquid.”
–Les Shaver