REIT Internalizations Becoming Increasingly Popular, Lawyer Says

Rosemarie Thurston, a partner at Alston & Bird LLP, recently joined Nareit at its Washington, D.C. headquarters to discuss issues related to the public non-listed REIT (PNLR) market.

Thurston discussed REIT internalizations—the process of switching from an external to an internal management team—which is usually considered to be more cost-effective when a REIT gains scale.

“The research has really shown that externally-managed REITs trade at a fairly significant discount to their peers and as a result they’re even subject to more activist campaigns,” Thurston said.

Thurston also commented on the record levels of PNLR fundraising, noting that over $2.4 billion of capital was raised by PNLRs in January.

“It’s a really exciting product, particularly for this time…PNLRs are a nice solution for investors who are looking for yield, [and] who aren’t in need of great liquidity,” she said.

Meanwhile, Thurston commented on the SEC’s Regulation Best Interest, which goes into effect in June. According to Thurston, the “wild card” is that some states are suing the SEC, claiming that the Dodd-Frank Act required a higher fiduciary standard than that set by the SEC. Some states, including Massachusetts, are also adopting their own fiduciary standards, she said.