Of course, this is starting to change with
the advance of tech solutions in a number
of different areas, such as tenant-landlord
communications or asset management.
But the one area that is still largely based
on older technology and processes
has been commercial real estate financing.
And here, too, we’re starting to see
change—that is, some glimmers of fin-
tech meeting up with proptech. “It is still
very emerging,” says Steve Weikal, head
of Industry Relations at MIT Center for
Real Estate, which maintains a database
of some 2,000 proptech startups on the
market today. Very few companies, Weikal
says, focus on the finance end exclusively
but there are bits and pieces in other
apps that give a sense of where the indus-
try might go. Weikal says he sees artificial
intelligence used in locational decision-
making (where a company might locate
its next store or factory), in valuations
and appraisals and in evaluating the risks
of a particular loan.
And in servicing as well, for while the
next iteration of Trimont’s platform will
be a predictive analytics engine enriched
with industry data, Ellerhorst foresees the
day when the platform will
be AI-enabled and capable
of making decisions. “What
we’re envisioning is not the
linear progression we have
now, but a system that can
process unstructured data,
such as voice, and that can apply
judgement and decisions in the context
of the data I feed it and the task I’ve sup-
plied to it.”
There is every reason to believe that
Trimont will get to this goal. Some rare
cases are already there.
Delancey Street is a private real estate
lender in New York City that uses AI technology to help it decide which real estate
transactions it will fund. The loan
amounts themselves are not huge—a couple of million—and the borrowers are on
the smaller side.
In March, New York City-based office REIT SL Green Realty Corp. announced it
and a joint venture partner had entered into an agreement to sell the three-acre
development site at 175-225 Third St. in Gowanus, Brooklyn for $115 million.
The joint venture, of which SL Green o wns 95%, acquired the 140,000-square-
foot site in 2014 for $72.5 million. When the transaction closes, it will generate
net proceeds of approximately $70 million.
And what will the REIT do with these proceeds? One common strategy is to
recycle capital, selling off lesser assets in order to purchase higher-quality ones
in a core market or strategy. SL Green has surely put such reasoning to work in
the past—but not with this particular deal, or others.
Instead, the proceeds from the sale will be used to help fund the company’s
stock repurchase program, which it expanded in December 2017 to $1.5 billion.
As of April 2018, the SL Green has repurchased a total of 12,258,203 shares for
this program at an average price of $100.30.
Share buybacks are hardly unique to REITs. Last year, for example, Walker
& Dunlop reauthorized the repurchase of up to $75 million of the company’s
outstanding stock following a similar measure in 2016. The theory behind
share buybacks or share repurchases is simple enough: with fewer shares
outstanding in the market, the company owns a larger percentage of the
shares and will make more profits.
But REITs are particularly well situated to take advantage of a share buy-
back right now, namely because they’re considerably undervalued by the
market, Continental Partners president Mitch Paskover says. “On a book
basis the properties are worth more individually than as a whole based on
earnings. Basically the PE ratio is really low so, a lot of the REITs feel like it’s
a good time to buy back stocks at a relatively cheap value.”
That’s the case SL Green president Andrew Mathias makes. “Our ability to
readily monetize assets at attractive valuations in a market where there is sig-
nificant appetite for investment enables us to repurchase our stock at a mean-
ingful discount to the private market valuation of New York City real estate,” he
said in a prepared statement.
The REIT has more transactions that are destined to fund its share repurchase
program. In April, SL Green Realty and joint venture partner Ivanhoe Cambridge
entered into a contract to sell the leasehold office condominium at 1745
Broadway in Manhattan for $633 million, or $939 per square foot, to an institutional client of Invesco Real Estate. SL Green has also separately entered into
contracts to sell two suburban office properties in Valhalla, NY and Rye Brook, NY,
to different buyers for a combined sale price of approximately $67 million. These
deals are expected to generate combined net proceeds of approximately $190
million, which will be used for the stock repurchase program.
Not all REITs are actively selling assets to fund their share repurchase programs—or at least, they’re not saying so specifically—but several do have some
program in place. For instance, Kimco Realty Corp. in February authorized a
$300-million share repurchase program that will run through 2020. Also in this
year’s first quarter, Tanger Factory Outlet Centers repurchased approximately
444,000 of its common shares at $22.52 per share for a total of $10 million. The
company’s $125-million share repurchase authorization is valid through May
2019 and currently has $65.7 million remaining for future share repurchases.
WHY REITS ARE INVESTING IN SHARE BUYBACKS
What commercial real estate lacks
is transparency; it lacks information
standards at an enterprise level and
a strong basis for transferring data
MAX ELLERHORST, Trimont Real Estate Advisors