Blue Vault – Bowman Alts Week 2021: A Quick Overview of Some Insights from Day 2
March 10, 2021 | James Sprow | Blue Vault
Prospect Capital, “Prospect Capital Convertible Preferred Stock and Priority Income Fund”
Grier Eliasek, President and COO, Prospect Capital
Prospect Capital’s preferred stock is the next generation of preferred offerings. Prospect Capital has been at it for 33 years and is far more diversified across the economy and industries and they sleep very well at night not being exposed to any one industry. They also eat their own cooking far more than other companies. Their managers have committed hundreds of millions to their funds. They not only stand to gain on the upside, but they also are at risk on the downside. They are
very pleased with their progress and expect to raise the offering’s $1 billion well in advance of the projected close. They believe that preferred stock demonstrates their commitment to the independent channel. He says that the “right hand side of the balance sheet” tends to be an area where companies get into trouble, and Prospect Capital has diversified their capital stack via the preferred stock issuances.
Leitbox Storage Partners, “Leitbox & Colliers National Storage Group talks a ‘Market Up’ vs. ‘Asset Down’ Self-Storage Strategy”
Bill Leitner, Managing Partner, Leitbox Partners
Ashley Compton, National Director-Self Storage Group, Colliers
Leitner and Compton discussed the current trends in self storage. In today’s market, there is a surplus of cash chasing deals in the space, coming from big public REITs and private equity funds. Ashley mentioned the low capital costs of some of the big players, including Public Storage that recently issued debt at less than a 1% yield. Leitbox has a long relationship with Protective Life, enabling them to meet the short timelines for financing new deals. 
Bill asked Ashley, “How varied now are the buyer profiles?” Ashley: “It is extremely varied. It is as competitive as I’ve seen in my career. In some cases, there is no time to get third-party due diligence done. You have to be in a strong cash position to be competitive in this market.” According to Bill, they’re seeing companies do an all-cash buy and then put debt on it after closing. Leitbox has been able to close quickly due to their relationship with a programmatic lender.
Bill also mentioned the automated self storage technology. Leitbox is currently doing their first fully-automated project in a small, vertical mixed-use deal. Automation can definitely benefit your bottom line and your exit strategy, according to Compton.
Legendary Capital, “A Better Way to Invest in Hospitality: Substantially Elevated Return Potential and Risk Mitigation”
Corey Maple, Chairman and CEO, Legendary Capital
Their primary objective is the preservation of capital. Legendary Capital is a leader in the hospitality sector, having survived the pandemic downturn in hotel occupancy and RevPAR by adjusting their strategy to appeal to remote office workers and lowering expenses. The results are impressive as they’ve been able to bring occupancies back up and have not competed on price as many competitors have been forced to do. They have been able to maintain positive cash flow during the pandemic. From a regulatory standpoint, they can go up to 70% leverage, but they have leverage at a much lower level. 
While many in the hospitality industry are in serious trouble, Legendary is in a position of strength to take advantage of investment opportunities later in this cycle. They currently have a pipeline of about 59 deals, representing 80 or 90 hotels. They should be able to “cherry-pick” the best deals as more owners are looking to exit the space.
Pacific Oak, “2021 Real Estate Opportunities”
Keith Hall, Co-Founder, Pacific Oak Companies
Jeff Kremin, National Sales Manager, Pacific Oak Capital Markets
Hall spent some time explaining their focus on single family rentals (SFR), which is in the early stages of growth and consolidation and offers investors significant upside. It has the potential to be the “new multifamily” sector in size and breadth. The U.S. housing market is a $33.6 trillion market, equal to the combined GDP of the U.S. and China. Approximately 22.3 million homes in the U.S. are occupied by renters. Institutional ownership of SFR is less than 2% of SFR. SFR is ripe for consolidation driven by economies of scale of larger owners.
The SFR sector benefits from attractive demand and supply, generating strong occupancy and rent growth. In the future, they see further capital market growth in the SFR sector, adding to the range of available investment strategies. Alternatives for liquidity include portfolio sales, mergers, and public listings.
Panel Discussion, “Evolution of Distribution in a Digital World”
Chris Shaw, Head of Retail Alternatives, SS&C ALPS
Eric Carlson, Vice President, Goldman Sachs
Brian Neal, Vice President, Schwab
Chris Shaw asked, “Is there a lot of discussion about how to adapt investments to the retail market?”
Brian Neal answered, “The demand is certainly there, from clients and RIAs. Some are new, some have been there for a long time. That growth continues and it hasn’t slowed down. It continues to pick up. As a firm we are trying to delve into how we offer these products to a wider selection of clients. HNW clients. At Schwab we’ve been looking at these products for a long time, but it has come to a head now. We are constantly looking at ways to make that happen and roll that out.”
Chris Shaw asked, “For a number of years we have been talking about automation and the digital portals. What have been your experiences with the move to digital. Do you think the advisors will actually use a digital portal to do these investments?”
Eric Carlson answered, “I don’t see any barriers to digitizing these investments. We’ve been analyzing third-party solutions as well as what we might want to build in-house. It is not going to be one solution solving all of the problems here. The economics of it make it difficult to get all of the dollars we would need to build a solution in-house.”
Brian Neal said, “Hopefully if it’s built, clients will come to use it. We’ve heard from our RIAs. We deal with the same things that Eric has mentioned. The manual nature of the paperwork is certainly an issue. We’ve been told by our clients that if we have it they will use it. The pandemic environment has forced us into the digital solutions, e-signatures, etc. That has been a positive that has come out of the pandemic environment.”
SS&C, “SS&C ALTSERVE Gateway –Transforming the Alternative Marketplace”
Nicole Greene, Head of Brokerage Solutions, SS&C
Chris Shaw, Head of Retail Alternatives, SS&C ALPS
Nicole Greene explained the SS&C Gateway with a chart showing the Asset Manager’s view, the RIA’s view, SS&C’s Share Registry, and how the AltServe Gateway manages the connections between the different roles, including the Intermediaries. She showed how the documents are handled, and how the different participants can get a complete view of the transactions in the system, at each stage of the process.
Nicole said, “The idea of the Gateway tool is, from the start, to be able to allow full transparency, no matter what seat you are sitting in within the process. At SS&C we are uniquely qualified because of the number of relationships we have within the industry.”
“ExchangeRight’s Strategy for Pandemic-Resilience”
Warren Thomas, Managing Partner, ExchangeRight
Geoff Flahardy, Director of National Accounts, ExchangeRight
ExchangeRight has sold 41 DST programs and focused on credit-worthy net-leased, necessity retail. Over 93% of the NOI is from those tenants that have been designated as a necessity during the pandemic by the government. They are currently managing portfolios in 40 states with roughly $3.2 billion in assets. All of their offerings are meeting or exceeding their cash flow projections. Their tenants have gone nine years without ever missing a rent payment.
ExchangeRight is solving investor needs first by capital preservation, with broad diversification within recession-resilient industries. They provide stable income from necessity-based, credit tenants with long-term net leases. Their programs offer tax deferral with depreciation deferrals and Section 199A REIT deductions. Their DST clients can exit into their REIT program via a 721 exchange or do another 1031 exchange, or cash out.
Panel Discussion, “Out with the Old and In with the New – A Candid Conversation with Today’s Technology Leaders”
Mark Fuentes, SVP Head of Operations, Ashford Securities
Dan Breen, Managing Director of Business Development, Great Lakes Fund Solutions
Bill Robbins, CEO, WealthForge
Amy Small, SVP Director of Institutional Custody, UMB Bank
Joseph P. Ujobai, Chief Executive Officer, Alternative Investment Exchange (AIX)
Amy Small of UMB began the discussion by explaining the role of UMB in the alternatives sector. They offer risk mitigation solutions, self-service applications, secure, cost-effective communications, and automation for enhanced workflows.
Bill Robbins asked the audience to give estimates of the percentage of their client portfolios currently using alternative investments and showed the potential if alts were to grow from 3% of portfolio allocations to 15%. The solutions offered by his firm’s Altigo product will engage, educate and empower advisors. It makes it possible to advise clients how to buy alternative investments and make it easier to own them.
Joseph Ujobai of AIX explained that they believe that automation exists today. He asked, “Does the technology partner empower all distribution channels and all product 
types?” The technology of owning alts is here today.
Dan Breen of Great Lakes Fund Solutions gave his perspectives as a transfer agent. “The pandemic has moved us ten years into the future. It forces us to create solutions. The two main challenges we’re seeing: the expectations, not making too many promises; the connectivity issue, how the technology looks, and
how the data comes to us, so we don’t have to replicate data sets. Getting better at digesting the data as it comes to us.” He also emphasized that we have all of the procedures we need and we just need to re-read them and follow them to stay out of trouble.
