The Grave Dancer Is At It Again

National Real Estate Investor (among others) reported on a transaction in which Equity Residential is taking a 26.5% interest in Archstone, a privately-held operator of multi-family properties.  The cost of the interest is $1.325 billion.

This is a large transaction by any measure, but is significant as well.  The sellers are affiliates of sophisticated investors, Bank of America and Barclays Bank, and the buyer is the fifth largest owner of apartment communities in the country.  Further, Equity Residential is the residential property vehicle of Sam Zell, a legendary real estate investor.  His reputation of  being able to identify acquisition opportunities in the bleakest markets earned Zell the nickname Grave Dancer.

In January 2007, Zell put his office property vehicle, Equity Office, up for sale. and was able to attract an FFO multiple nearly double what the market was valuing the portfolio.  Of course, this kind of a premium was one signal of the topping of the commercial real estate market.  The Rational Realist summed it up: "Sam Zell's new nickname will be Snake Charmer, not Grave Dancer."  It appears that Zell is tuning up his flute again.

The Perils Of Trading In New Issues

This is why it makes sense to wait until new issues are seasoned before trying to trade them on an exchange.  It appears that the discount broker did not work the order.  It may have even been one of the brokerages that promise "instant" execution.  I would say the investor was a victim of unfortunate timing, not of high tech scalping.

Wells Settles With FINRA

In April, I wrote a note about Wells Investment Securities coming under scrutiny from FINRA for sales materials related to the Wells Timberland REIT offering.  Investment News had an article last week that appears to report on the conclusion of that investigation.  Wells has been fined $300,000 in conjunction with a letter of acceptance, waiver, and consent related to what FINRA describes as false and misleading marketing materials.  The dispute revolves around the fact that the Wells Timberland did not qualify to be treated as a real estate investment trust until December 31, 2009, and that Wells Timberland held only one property despite stated objectives of diversification.

I am not a Wells apologist, but I think that Wells is the victim of an overly aggressive regulator.  I am familiar with all of the marketing material supporting the timberland offering, nearly from its inception.  It was clear that the the REIT held only the Mead-Westvaco property, and that any diversification would be dependent on raising additional capital, and a lot of it at that.  And the prospectus and financial statements files with the SEC stated frequently that Timberland had not yet qualified a a REIT.  This is a case of failure to execute a business plan due to undercapitalization, not a misstatement of the business plan. 

I think that Wells suffered a little bit from its prior dealings with NASD.  Wells has a history with the regulator, and I think that history had an effect on FINRA's position and its willingness to negotiate.IN this case, it's a shame because it appears that Wells was trying to remain true to its business plan, while executing prudent tactics.