In a career that has involved numerous business turn-around success stories, last year’s merger of VEREIT Inc. with Realty Income Corp. (NYSE: O) ranks high for consummate corporate fixer Glenn Rufrano, winner of Nareit’s 2021 Industry Leadership Award.
The award is given annually to a REIT executive who has made a significant and lasting contribution to the growth and betterment of the industry. Rufrano’s 45-plus years of experience in real estate, and his transparent management style, were highlighted during the presentation at Nareit’s REITworld: 2021 Annual Conference in November.
Rufrano led VEREIT from 2015 until the Realty Income transaction, and ‘fixer’ is a description that he readily accepts: “It’s flattering because it implies a positive conclusion. It’s fair because it comes from actual experience.”
Rufrano describes the merger as a "very good outcome in a very difficult situation." That difficulty stemmed in part from the fact that VEREIT, previously known as American Realty Capital Properties Inc., grew from $2 billion in assets in 2013 to $20 billion a year later. An accounting irregularity announced in the third quarter of 2014 led to the involvement of the Securities and Exchange Commission and the Department of Justice, as well as a major class action lawsuit, he explains.
When Rufrano took over the helm in 2015, the company rebranded as VEREIT, assembled an entirely new management team and board, and implemented a new business plan. Despite facing a range of challenges, Rufrano had no hesitation accepting the position. “I actually thought that was the best real estate role in the country.”
Before joining VEREIT, Rufrano had proven his mettle when leading New Plan Excel Realty Trust, Inc., Centro Global Property Group, and Cushman & Wakefield, Inc. All three companies had undergone major structural adjustments that included shedding assets, repositioning, and changing senior management.
One reason why Rufrano says he has enjoyed turning around four companies over the past two decades is that while the problems can be significant, “you didn’t cause the problems. Because you weren’t there when those problems existed, you have no legacy issues.”
Formula for Recovery
Rufrano says that over the years he has adopted a common-sense plan to tackle ailing companies. The formula, he says, is to first identify the big issues at the heart of the problem, come up with a plan, and then have the ability to fix those problems through the management and board. “You have to have the discipline to execute the plan that you think is right and be consistent and transparent— then it tends to work,” he says.
And while Rufrano has been laser-focused on rooting out the fundamental problems undermining an ailing company, creating a strong corporate culture has always been a key component of the plan.
Underpinning that concept of culture is the notion of treating others as you would expect to be treated, he says. “You can’t have bullies; you’ve got to have respect for people. If you can’t have that I don’t believe you can have a sound organization.”
Culture should also have a business approach to it, Rufrano adds, comprised of discipline, consistency, and transparency. An additional element of culture is corporate commitment, which must extend beyond pleasing shareholders to encompass employees and tenants. “All three of them have to be satisfied that you’re doing the best job possible,” Rufrano adds.
This holistic view of corporate commitment has become more widely accepted across the industry, Rufrano points out, as the focus on ESG issues has grown and ESG questions are no longer relegated to the end of investor calls. He describes ESG as not just an idea or a concept, “it’s an execution, and beneficial whether it’s at the employee level or board level.”
As to whether additional mergers and acquisitions will occur in the REIT sector, Rufrano says the pandemic separated those companies with higher multiples from those with lower. “It created some stress around the system, and when there’s stress around the system, that’s when M&A works the best…I think there’s still room for some more, maybe another year of it, then we’ll see what happens.”
Rufrano says it is not clear whether many of the changes wrought by the pandemic will turn out to be cyclical or secular. In the office sector, however, he believes that there are some changes that could be secular
“It’s not that people don’t need office space, but they may need less because there’ll be more flexibility in remote working habits,” Rufrano says. Industrial is also seeing a secular change with regard to last-mile warehouse distribution. Whether changes in the retail sector are secular remains to be seen, he adds.
Rufrano points out that there is always obsolescence that creates change in the industry. As a result of the pandemic, “we are going to see more repurposing to address the demand that was accelerated,” he says. Malls might be repurposed into multi-property portfolios, some office buildings will be converted into residential, while warehousing is changing “as we speak.”
As Rufrano looks across the U.S. real estate sector today, what excites him is that it is, in his view, the premier real estate market in the world that continues to attract offshore investors
The liquidity of the U.S. market is a huge advantage to the industry, Rufrano says. And by ensuring that the REIT industry is well-understood, he adds, Nareit has played a pivotal role in the markets’ willingness to provide that essential liquidity.
Rufrano notes that in the second quarter of 2020, many REITs pulled down their revolving lines of credit out of fear that banks wouldn’t be able to fund them if they needed money. By November 2020, however, VEREIT was able to issue a 10-year, $1.2 billion bond at 2.7% that was oversubscribed.
“Just think about how the capital markets in this country revitalize themselves. It’s astounding. To be part of a real estate market with such liquidity and such passion for real estate from outside the U.S. is really exciting to me,” Rufrano says.