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Brad Thomas is a research analyst and he currently writes weekly for Forbes and Seeking Alpha where he maintains research on many publicly-listed REITs. In addition, Thomas is the Senior Analyst at iREIT Forbes and Editor of the Forbes Real Estate Investor, a monthly subscription-based... More
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  • Promising Income Alternative – Real Estate Private Equity in a Mutual Fund 10 comments
    Feb 15, 2012 10:35 AM

    Because real estate private equity funds typically require minimum investment between $5 and $20 million, the option of investing in institutional quality real estate has been unavailable to individual investors. However, similarly to institutions, individual investors are hard pressed to navigate between low-yielding bonds and high-risk equities.

    As a result, retail investors (like institutions) are seeking greater exposure to non-correlating alternative investments that provide consistent income with low volatility. High-quality income producing real estate has emerged as a favorite among retail investors, but the question for many investors is: "how should I get my exposure to investment real estate."

    Since 2002, individual investors have flocked to non-traded REITs to the tune of $81.3 billion (source: Blue Vault). By definition, the key benefit of non-traded REITs is that they are not yet publicly traded. Subsequently, they offer the reasonably predictable cash flow without the volatility incumbent in the public markets. However, as noted by an Investor Alert by FINRA, non-traded REITs come with issues including high fees (up to 15% upfront), little or no liquidity, conflicts of interest and a lack of transparency.

    Faced with the prospect of low-yielding bonds, high-risk equities, and the issues of non-traded REITs, where does the average investor turn when it comes to real estate? A bulk of real estate private equity funds (core open-end commingled funds) such as the Morgan Stanley Prime Property Fund and AEW Core Property Trust, focus on and are built to deliver the traditional benefits of real estate ownership; income, low-correlation to other assets and a hedge against inflation.

    The Next Big Wave for Real Estate Investors

    Many real estate leaders have imagined the next generation of real estate to come from a way for individuals to invest in real estate private equity. That time has come. One uniquely innovative new product promising to deliver direct real estate ownership to individual investors with the underwriting transparency and fee structure of inherent in institutional structures is Versus Capital Multi-Manager Real Estate Income Fund (MUTF:VCMRX).

    This differentiated new product takes individuals out of the corner of non-traded REITs into the world of institutional real estate private equity funds. Versus Capital provides a differentiated platform in which the retail investor can participate in diversified, non-correlated, income producing institutional quality real estate. Versus Capital is a multi-manager mutual fund that invests with some of the most highly sought after private equity funds. Structured as a 40-Act mutual fund, Versus seems to be more investor friendly and features no upfront load, daily NAV pricing, quarterly liquidity and 1099 tax reporting. By assembling a diverse group of institutional funds, Versus seeks to provide a sound "margin of safety" by investing in a focused cross-section of commercial real estate managed by some of the best real estate fund managers in the world.

    This multi-sector and multi-disciplined approach combines the best of institutional asset managers with broad-based diversification that includes income and value added strategies in multiple asset sectors (multi-family, office, retail, industrial, hotel, storage, mezz). Here is the targeted asset sector model:

    The Versus Capital is also geographically diversified and the risk-averse fund was developed with the core strategies designed for investors seeking income, diversification, inflation protection and attractive risk adjusted returns.

    Ultimately, this wave of opening up institutional fund managers to the retail market lies with the success of the Versus fund and the willingness of investors to embrace a new structure. Time will tell but it looks like this offering is well aligned with the investors' investment objectives of stability, income, and growth (in this order) with a liquidity feature that helps investors sleep well at night.

    Versus Capital is targeting a 5.5% dividend and the mutual fund can be viewed on this Bloomberg link.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (8)
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  • Philipsonh
    , contributor
    Comments (2066) | Send Message
    Only for high asset investors. Inability to withdraw funds is an extremely negative aspect. At best one can get funds quarterly if the fund allows it. That's the way it reads to me.
    16 Feb 2012, 08:07 PM Reply Like
  • Brad Thomas
    , contributor
    Comments (17147) | Send Message
    Author’s reply » as i understand it, 30% is in cash or liquid securities so this is deemed liquid (more liquid than the nREITs). I think it will be accepted and I like the diverse model...this is the anti nREIT model.
    16 Feb 2012, 09:04 PM Reply Like
  • Philipsonh
    , contributor
    Comments (2066) | Send Message
    Mr THomas
    I did not mean to seem critical in my comment. This fund may be an excellent vehicle for investors who are willing to invest a minimum of $10K for at least one year, without penalty. Subsequently withdrawals are allowed on a quarterly basis, so your money is basically locked in for 15 months.
    Do you have further information ? Have they initiated purchases ?
    Everything I see is generic and estimates/guidelines. Perhaps you can offer further guidance so as to make this fund more transparent. Thank you
    17 Feb 2012, 08:39 PM Reply Like
  • Philipsonh
    , contributor
    Comments (2066) | Send Message
    Mr Thomas
    I sent an e-mail to this fund and it rejected, stating it was a restricted site. I used the address provided within their site. Furthermore, one brokerage firm that I use advises that this fund cannot be traded and a second one has no listing for it. Are you sure they are geared towards individual investors ? They have been working on this fund since March 2011 and it appears they are still not ready to move forward. Additionally, statements within the website claim they expect the average invesment will be between $50-$75K. Frankly, I do not see that this new fund
    understands what an individual investor is, or thinks, and the
    way it is set-up makes it a hybrid between a closed end fund and an
    open ended mutual fund. Lastly, their annual expense is going to be
    3.30%, or more. I was initially interested but the more I read the less
    interest I have. Perhaps you are able to comment and note any errors i have made in my comments or provide additional guidance.
    Hopefully I am incorrect in some of the data I included within my
    comments. So far its quite a "turn-off". It appears that once they
    are funded, they expect to earn approx 8-9%, charge fees of approx
    3.30%, and as a Reit pay out 90% , but tie up an investors money
    for a minimum of 15 months intially, and even then, they have the
    right to disallow withdrawals. The projected dividend stated is 5.50% Appreciate anything anyone else can add. Thanks.
    18 Feb 2012, 10:32 AM Reply Like
  • Brad Thomas
    , contributor
    Comments (17147) | Send Message
    Author’s reply » Philipsonh - To my knowledge the fund is available through brokerage firms that have a selling agreement with the fund which may explain why your brokerage firm has no listing. I believe the fund is or will soon be available through Schwab, TD and RIAs. You are correct, the fund is a hybrid between a closed and open end funds. This is simply because 70% of the fund will be invested in less liquid private real estate funds. The fund does offer quarterly liquidity and as I have been told that liquidity is mandatory. There is a 2% penalty for withdrawals in the first 12 months. Real estate is not a short term investment and I would consider this fund a 3-5 year hold type of fund. If you do need liquidity in a 12 month time frame, REIT stocks, mutual funds or ETFs may be a better way to go. The big benefit of this fund is that you do gain access to less correlating direct real estate, a yield premium over traded REITs and even though $10,000 may seem high as a minimum investment, it is much lower than the $5-$20 million many of these funds require.
    21 Feb 2012, 10:52 AM Reply Like
  • Philipsonh
    , contributor
    Comments (2066) | Send Message
    Hi Mr Thomas
    Thanks for response. I understand everything you have stated and I
    agree that it may be an excellent investment for the right type of investor. I simply did not appreciate the fact that when I send an e-mail to them, from within their site, it rejected as "restricted". I have read thru their documentation and to me it appears that return of funds to investors is at the fund's disgression. Of course they may have supplementary material that I have not seen which alters this
    rule. I fully understand that a smaller investor can get access to
    institutional products via this vehicle. Hopefully when they are up and running everything will be clearer. Thank you.
    21 Feb 2012, 08:55 PM Reply Like
  • Philipsonh
    , contributor
    Comments (2066) | Send Message
    Mr Thomas
    I forgot to mention ,will you post a comment when you learn more about VCMRX.
    They state they are continuously accepting investments ( up to
    $750M ). I am unsure if that is contradictory or not.
    I gather they are accepting investments, like an open-ended mutual fund, and then closing the fund to investors when assets reach
    $750M. That's my take.
    One has to be aware that any NAV they post will necessarily be an
    estimate since much of the portfolio will be private investments.
    I am in a position to invest in this fund but, unlike other vehicles I
    consider, in this case, I cannot decide.
    Obviously the only way to get any questions answered will be to
    phone them.
    Thank you.
    21 Feb 2012, 09:07 PM Reply Like
  • fatpitch2
    , contributor
    Comments (120) | Send Message


    I stumbled across this while looking for some alternatives to nREITs. Is this by chance an investment vehicle you still follow? They appear to have two share classes - F & I.
    Investing in the I-class shares apparently either requires the ability to write a check with 6-zeros on the end or find an RIA that is acting as an agitator, which I've not been able to find so far...


    The F-Shares have some lower investment minimum, but offer a much less attractive distributions 4.13% vs. 4.81% per this doc. I found via a google-search:



    any thoughts appreciated!


    6 Mar 2014, 10:45 AM Reply Like
  • Vince44
    , contributor
    Comments (29) | Send Message
    Unrelated..... Please comment on a REIT that I do not find in your newsletter.


    Thank You,
    21 Oct 2014, 06:37 PM Reply Like
  • Brad Thomas
    , contributor
    Comments (17147) | Send Message
    Author’s reply » I'll take a look....Altisource Residential Corporation
    21 Oct 2014, 08:05 PM Reply Like
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