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| Best Practices: Ownership Stakes - Institutional Asset Management |
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| Written by Harris Smith |
| Tuesday, 19 April 2011 08:41 |
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An alternative trading system ("ATS") that does not publish quotes to the marketplace gets the unfortunate moniker "dark pool". That label leads some in the investing public to believe that nefarious activities are taking place, when in fact dark liquidity has existed in many forms since the beginning of trading on organized stock exchanges. Indeed, ATSs that do not publish quotes are only one form of "dark" trading that occurs today. Do they own and manage diverse assets? While we typically think a REIT should diversify among different kinds of spaces - retail, residential and office as mentioned above - a good real estate investment trust should also manage properties in different geographic locations, not just in Canada, but also ideally in the United States. Do they have good relations with their tenants? Ask about the support services the REIT offers its tenants. Is there the opportunity for tenants to contact property managers 24/7? Has the syndicate manager demonstrated that tenants are truly happy, and that there requests are being listened to, and, when feasible, addressed? Happy tenants typically will pay higher rents, and higher rents generate more profits. Are their properties attractive? What kinds of properties does the trust own and manage? Where are these properties located? More attractive properties tend to attract more attractive tenants who are able to pay higher rents. Are they consistent? This is a two-part question, and everything really boils down to focus. Does the syndicate attract a tenant base with common needs whose needs are easy to meet? Is management focusing on tenants who pose little risk, and who will be located in the properties over the long term? As well, it's important to determine if the management has developed a strategic approach to meeting tenant needs. By remaining focused, and by being focused on the consistent activities, a REIT will help generate more profits. Do they have flexible office hours? Tenant needs are not confined to office hours. There may be a leaky roof in the middle of the night, or some other problem that needs to be solved at any time. A REIT manager should be available to help address and solve these problems - once again, this makes for happy tenants, and happy tenants tend to pay higher rents and leases, and tend to stay in the property over the long term. For investors, this means potentially higher profits and distributions. The stipulation of an up-front ownership stake above and beyond management fees, besides demonstrating the philosophy of the REIT manager, also may indicate a poorly structured syndicate. As a private REIT best practice, I would argue that the syndicate management should not demand an automatic 15 or 20 percent ownership stake right at the start. Such an ownership stake takes away the incentive for managers to increase the profitability of the properties owned by the REIT. Are their business practices transparent? REIT management should always provide clear financial information to investors in a timely fashion. The REIT manager's share in profits is dependent on their own performance. At the end of the day, when institutional asset management does not take an ownership stake or demand guaranteed cashflow up front, this means greater return on investment for you, the investor. Instead, incentive for the manager is tied to such tangibles as rent, increases in property value, and profits realized from the sale of capital assets - the real estate actually owned by the trust. About the Author: Harris Smith is a personal finance writer interested in home equity line of credit Don't Miss Out! Debt Consolidation Free online quote available. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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