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A
private REIT co-founded by Ray Wirta, former CEO of CB Richard Ellis,
is cutting out the financial middleman by allowing investors to
conduct their business online — without ever needing to speak to a
REIT representative.
With just a few mouse clicks, a
Nexregen
LLC investor can own shares of a
specific Nexregen-owned property, rather than shares of the REIT
itself. Nexregen has filed for a patent on its proprietary Web-based
system.
Newport Beach, Calif.-based Nexregen is
targeting small-scale investors who are likely unfamiliar with the
ins and outs of buying and selling commercial real estate. The
minimum investment required: $2,500.
“Part of our strategy is to be very high on
transparency, very high on ease of access and very high on ease of
use,” says Harold Hofer, a longtime real estate executive who is one
of the leaders of Nexregen.
Through the Nexregen portal, a registered
user can view available properties and download property
descriptions, site plans, photos, aerial views, local demographics,
prospectus documents and tenant rosters. Nexregen and its
consultants assemble that information. All investor research and
transactions can be done solely online, but Nexregen does provide
assistance by phone or email. For now, investors must pay by check,
but Nexregen hopes to offer a credit-card option soon.
Nexregen also will post monthly financial
reports on each property in its portfolio as well as quarterly
business summaries.
“Through Nexregen, you don’t have to be a
Donald Trump to enjoy the benefits of owning commercial real
estate,” says Wirta, who retired as CEO of CBRE in 2005 but still is
vice chairman of the company. CBRE has no financial ties to Nexregen.
Currently, Nexregen can sell shares only to
residents of Texas, the lone state where the REIT is registered to
offer securities. However, Nexregen plans to obtain regulatory
approval to expand to other states next year — including California,
Florida and Illinois — and intends to branch out to other countries
in late 2008.
John McDermott, senior vice president of
commercial real estate brokerage firm Sperry Van Ness Inc., says he
thinks the Nexregen concept will take off and other commercial real
estate outfits will follow with similar offerings.
Hofer says Nexregen will hunt for income-producing
properties with price tags of $10 million to $20 million that
produce strong cash flow.
Nexregen’s debut property is
the 148,870 sq. ft. Firewheel Village Shopping Center in the Dallas
suburb of Garland. A Nexregen limited partnership bought the fully
leased retail center in May for $13.4 million, or $91 per sq. ft.
The average rental rate is $6.58 per sq. ft. per year.
As of mid-November, 14 investors had
purchased a total of 66 shares in the shopping center at $2,500
apiece. For that property, Nexregen has earmarked 3% of the gross
proceeds for operating costs.
Nexregen currently focuses on
retail real estate such as the Garland center but plans to pursue
the apartment market as well. A firm timetable for Nexregen’s move
into the apartment sector hasn’t been set.
Nexregen retains a 10% stake in all of its investment properties.
Once investors have reaped an estimated 7% return on investment,
Nexregen will collect 25% of the profit and investors will hang onto
the remaining 75%, Wirta says. Nexregen envisions owning the Garland
center and all of its other properties for three to seven years.
Unlike most private REITs, Nexregen cuts
out the middleman — financial planners and broker-dealers and doesn’t
charge transaction fees. Typically, as much as 15% of the share cost
goes toward commissions, according to Nexregen.
Even so, Sheridan Titman, a professor of finance at the University
of Texas who has researched REITs, isn’t so sure Nexregen is the
best bet for real estate investors. “I like the idea of a no-load
private REIT,” he says. “However, I think investors may be better
off buying a diversified portfolio of public REITs.”
Titman and other observers say traditional
REITs offer a broader-based investment approach, thereby spreading
the risk among various properties, while a Nexregen investment is
tethered to the ups and downs of a single property. However, Wirta
points out that an investor may be unaware of precisely which
properties are in a traditional REIT’s portfolio, while a Nexregen
investor can become intimately familiar with a property.
Nonetheless, Wirta and Hofer understand the
concerns of doubters. That’s why Nexregen extends a money-back
guarantee to each investor for one year. Wirta says the guarantee,
along with Nexregen’s 10% stake in each property and the ability for
an investor to tour a property, should help allay investors' fears.
“This could be a nothing or a very big
thing. We’re certainly hoping for the latter,” Wirta says. “Now, we
have to see how it plays in Poughkeepsie.”
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