REIT Funding Accommodates Private REITs

4/12/2011 | By Matthew Bechard

Charles Harrison, president of REIT Funding, spoke with during REITWise 2011: NAREIT's Law, Accounting & Finance Conference in San Francisco about how his company helps manage and form private REITs. REIT Funding has provided the accommodation shareholders for approximately 900 private REITs.

"The last things our clients want to do is go out and find 100 investors to fill out the REIT shareholder requirement," Harrison said. "We also help the company manage the relationship with them and keep track of them over the years as the REIT operates."

"We'll keep track of the shareholders and answer their questions so that the REIT doesn't have to," he said.

Harrison said the company typically does a Reg-D offering to 125 shareholders at $1,000 per share. After the REIT is formed, REIT Funding will oversee dividend payments, 1099 forms and other shareholder management.

When asked about the available funding market, Harrison said that while 2007 was obviously a high point, 2008 and 2009 were the low points. However, he said that the market began to bounce back in 2010 in terms of the number of REITs his company provided shareholders for.

"It was back in the 2004 to 2005 level, which is really quite good," Harrison said. "While it may not be an exact barometer of the market, it is close. Now the numbers are getting back to the 2006 to 2007 levels."

There are two key issues that private REITs face, according to Harrison. Those issues include the Foreign Investment in U.S. Real Property Tax Act (FIRPTA) and the related issue of IRS notice 2007-55. This impacts the structure that involves a foreign investor joint venturing with a U.S. REIT and forming a domestically controlled private REIT, he said.

"A lot of work is being done now by real estate organizations to try and get Treasury to reverse 2007-55 or to get a legislative proposal. And I think progress is being made," said Harrison.

In today's market, Harrison added that the investors his company brings into private REITs are looking for dividends and diversification. On the institutional side, Harrison said the ability to appeal to foreign capital, tax-exempt foundations and others brings in a whole new source of equity for the deals they are doing.