On June 29, The Rational Realist reported that Wells REIT II had announced that it will not pay to internalize its advisor. This is a big deal, as the internalization fee was the big payday for a syndicator, and it wasn't subject to such uncontrollable factors as performance. Wells Real Estate Funds is forgoing probably between $150 and $200 million.
This is not an altruistic move. Leo Wells is a very charitable man. However, he is very quick to tell you that Wells Real Estate is not a non-profit organization.
Nor is this an indication of some newfound backbone by the Board of Wells REIT II. REIT boards are filled from a good ole boy network, and Leo Wells is the definition of a good ole boy.
Forgoing the internalization fee is the second move that the wells organization is taking to address an issue tat is much bigger to Leo Wells: slumping sales. at its core, Wells Real Estate Funds is a sales organization, not an investment organization, not a real estate organization. Every decision is made through a lens pointed at sales trends. Wells Timberland's capital raise was an enormous disappointment. The raise for its Mid-Horizon Value-Added fund has been lackluster. Core Office REIT was on a run rate of about $1 million per day raising just $225 million through December 31, 2011 and $282 million through March 31, 2012. In May, Wells made wholesale changes in its senior sales personnel. Now, Wells II has reduced its fees.
What has not happened is the renunciation of internalization fees for the Core Office REIT. I guess Wells is hoping that the market will pick up the implication that no more internalization fees will be charged. Their market prospects would improve much more significantly if the Core Office REIT would just adopt that position.
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