The need for liquidity events is helping to push the recent trend of non-traded REITs going public, according to Adam Markman, managing director with Green Street Consulting.
“Non-traded REITs are typically finite-life vehicles, so they have to have some sort of liquidity event for their shareholders,” he said in a video interview with REIT.com in New York during RETIWeek 2012: NAREIT’s Investor Forum. “The most obvious one of those is to come public and to list their shares on the stock exchange.”
Additionally, non-traded REITs are facing increased scrutiny from regulators at FINRA and the Securities and Exchange Commission regarding mark-to-market for their product, according to Markman. He also pointed out that initial public offerings enable management teams that have been together running non-traded REITs to stay together, as opposed to being forced to sell their companies.
While there is a chance that some of the companies taken private prior to the financial crisis could go public once again, Markman said it’s not a good one.
“I don’t think we’ll see a wave of those companies come back, but I do think we’ll see them,” he said. “The primary driver is that they’re typically big companies and the companies that privatized them aren’t typically in it for the long haul, so there’s going to be some need for liquidity over time.”
Markman also noted that many of the companies that were taken private are run by “tried and true” management teams with some familiarity in the public markets to ease the transition.
Markman encouraged privately held REITs to observe how publicly traded REITs operate and strategize.
“The publicly traded REITs are a terrific laboratory for private companies to observe,” he said. “There are over a hundred companies that are trying out different strategies and capital structures and whatnot. There are quite a few lessons that the public side can teach the private side.”
Those include lessons in developing external growth strategies, corporate governance, managing capital structures and making sure management’s interest are aligned with those of shareholders.
“Those are all things that we can see in the public market that are very applicable to the private side as well,” Markman said.