“Predatory” Mini-Tender Offers Highlight Liquidity Challenges for Real Estate Alts
August 29, 2022 | Beth Mattson-Teig | WealthManagement.com
Following a big year of fundraising last year, real estate alternative investment vehicles, such as non-traded REITs and business development companies (BDCs), have been posting more record inflows in 2022. However, one drawback of those structures has always been that investors have few options to get capital out if they need an early exit, which has fueled a practice, mini-tender offers, that some critics view as predatory.
According to Robert A. Stanger & Co., the real estate alts sector has raised $69.3 billion year-to-date through July—a 95 percent increase over the same period of 2021. Fundraising has been led by NAV REITs at $23.6 billion, non-traded BDCs at $17.1 billion, interval funds at $15.5 billion and DSTs at $6.0 billion. While capital is pouring into these vehicles, existing in advance of a planned liquidity event, such as a sale or IPO, can come at a steep price for shareholders.
“I think almost everybody in the industry would agree that there is a need for liquidity options for investors. Where it becomes a debate is what is a fair discount?” says A. Yoni Miller, co-founder of QuickLiquidity, a direct lender for commercial real estate investors that have trapped equity.
A number of opportunistic investment groups have been trying to capitalize on the illiquidity within the real estate alts sector with unsolicited mini-tender offers (less than 5 percent of company shares) to buy shares, often at bargain basement prices. Examples of mini-tender offers over the past year include:
