Wells Real Estate Funds is shifting gears. After building its reputation as one of the nation's most asset-hungry office buyers, the Atlanta-based sponsor of unlisted REITs has sold off $760 million in assets so far this year.

This is a departure for Wells. In 2003, by comparison, eponymous REITs I and II spent a combined $2.59 billion on office buildings. That's a staggering sum given that Manhattan-based property research firm Real Capital Analytics reports that unlisted REITs spent $6.60 billion on U.S. office properties that year.

So why is Wells recalibrating its portfolio and, to some extent, its acquisition strategy? The company says that little has really changed. But a closer look at the unlisted REIT playing field, which has grown in the past 18 months, suggests that competitive pressures are playing larger a role than Wells cares to admit.

"We've been net sellers in 2005, but we plan to acquire about $1.5 billion of property this year," says David Steinwedell, chief investment officer at Wells Real Estate Funds.

Last year, for example, Wells spent $1.3 billion on new acquisitions, less than half as much as they spent in 2003. And earlier this year, Wells did something that many critics felt they'd never do: They sold part of their Wells REIT I portfolio to Lexington Corporate Properties Trust for a tidy $760 million. The portfolio sale startled critics who believed that Wells was nothing more than a high-bidding acquisitions machine incapable of selling anything but its own shares.

Wells has also begun exploring some alternative investments within the office market. Instead of pursuing core office buildings with low vacancy and credit tenants, Steinwedell says that value-add office properties in suburban markets are increasingly on their radar screen — once again. "That's really where we have our roots, in the suburban office market," he says.

The value-add strategy may make sense for Wells, given steady improvements in the national office market. Indeed, Merrill Lynch reports that U.S. office vacancy fell by 0.9% between the end of 2004 and June 30 to reach 14.6%. Another positive sign: Merrill Lynch expects U.S. office vacancy to trail even lower in coming years, down to 13.2% by year-end 2006.

With fresh rivals like Hines' $2.2 billion unlisted REIT and others competing for investors and assets, Steinwedell admits that closing deals hasn't gotten any easier within the past year. He even claims that Wells wins just 5% of the deals that it bids on these days.

"It's very competitive out there, and you have so many different capital sources vying for deals," he says. Doing the math on his single-digit deal-closing percentage, Wells has bid on more than $7 billion worth of real estate in the past year.

In reality, however, Wells spent only $361.2 million on new acquisitions during the first seven months of this year. The Hines-sponsored REIT, by comparison, spent $264.5 on similar properties during the same period.

Added competition may also explain why Wells financed a marketing research survey of 4,000 Wells REIT investors in January. The commissioned study by Spectrem Group — which bills itself as a consulting firm specializing in the "affluent and retirement markets" — found that 94% of all respondents were satisfied with their Wells investments.

The survey was designed to measure investor sentiment on responsiveness, quality of communications and confidence in Wells. Not only were investors satisfied but 77% actually said they would refer others to Wells if asked to do so.

For now, Wells doesn't even need to ask. The firm is supposedly raising $100 million a month from new investors, says Steinwedell. He claims that investors are attracted to Wells' 97.9% occupied portfolio of office and industrial properties. That Wells carries very low leverage — roughly 20% of its total portfolio value, he claims — is also a draw.