Wells REIT’s purchase of the Foster Wheeler building on 585 N. Dairy Ashford in Houston, TX may give hope to a deflating office/tenant market in Houston, especially in the Energy Corridor where several newly constructed buildings sit near empty, but this acquisition has hair all over it.
Per Costar, Wells already has a Houston presence. It purchased the Weatherford Center on 515 Post Oak, yes Weatherford. It also paid $285 per square foot for 5 Houston Center at 1401 McKinney, to which 1 tenant over 5,000 SF has been signed in the last 2+ years and is advertised for lease at around 90% occupancy, with several leases coming due.
With regards to Wells REIT II – the prospectus. Look out for those fees! And, Supplement 1.
Now, regarding Leo Wells and Wells Reits…
Leo Wells on Commercial Real Estate:
From my perspective, there were no mispriced bargains in the core stabilized sector last year, and pricing appeared fair and responsible. In fact, a handful of recent transactions in the office sector illustrated how high-quality core properties are selling for prices that are higher than last year.
Leo Wells on Leo Wells:As a result of all of these influences, I’ve developed some foundational principles which you may have noticed on the home page of http://www.LeoWells.com/:
- Glorify God
- Care for people
- Remember that money is simply a tool
- Maintain integrity
- Emphasize ethics
This is by no means a comprehensive list of all I believe and try to practice, but it will at least give you some idea about the core values that shape my thinking. Your guiding principles might not be exactly the same. But I would encourage all of us to pause every now and then to reflect on our values, and whether those values are consistently manifested in our lives. I believe it was Socrates who once said, “The unexamined life is not worth living.” This is no less important in business, as those of us who own businesses must constantly assess whether the policies and practices of our companies are consistent with our core values and founding principles. It’s amazing how easy it can be to get off track when we don’t hold ourselves accountable!
As I’ve said before, many of us in commercial real estate have eagerly anticipated good properties becoming available for purchase due to distressed situations. For a variety of reasons, however, few of these buying opportunities materialized in the past year.
In my last blog post, I mentioned the continued interest of foreign investors as one reason why core stabilized real estate has been able to hold its own. Another reason is that regulators do not seem to be pressing lenders to foreclose on delinquent real estate.
Now, ReitWrecks on Leo Wells & Wells REITs:
Indeed, it would be easier and cheaper to hire Johnny Cochran to bail you out of a murder charge than to somehow come out ahead on a non-traded REIT investment. You would also be leaving much less to chance. In addition to the upfront commissions of 7 percent paid to your broker and a dealer/manager fee of up to 3 percent paid to the sponsor, there are individual property/asset acquisition fees of up to 2.75 percent, property financing fees of up to 1 percent, disposition fees of up to 1 percent, and asset management fees of up to 1 per annum, plus expense reimbursements. The net result is that out of a $10,000 initial investment, only about $8,000 would remain to buy property.
Obviously, these fees encourage only two things: sales of non-traded REIT shares and purchases of property – any property – at almost any price. David Swensen, Yale Endowment’s chief investment officer, singles out the Wells REITs in his book, “Unconventional Success” (pages 70-75). Swensen obviously knows his way around alternative investments, and his opinion of Wells is unambiguous:
“No rational buyer can compete with the Wells acquisition machine’s willingness to overpay for product. As a consequence, investors suffer the double indignity of high fees and poor investment prospects.”
On top of it all: Because several references point out that Wells’ dividend payments to shareholders exceed(ed) the norm, coupled with the fact that not one of Wells’ 92 properties is listed for sale, per website, suggests this story is far from over.
View several Wells REIT investors who are currently trying to get their money back, here, as well as the Businessweek article on Non-Listed REIT’s, a ticking time bomb for the commercial real estate industry.
