A private REIT co-founded by Ray Wirta, former CEO of CB Richard Ellis, is cutting out the financial middleman by allowing investors to conduct their business online — without ever needing to speak to a REIT representative.
With just a few mouse clicks, a Nexregen LLC investor can own shares of a specific Nexregen-owned property, rather than shares of the REIT itself. Nexregen has filed for a patent on its proprietary Web-based system.
Newport Beach, Calif.-based Nexregen is targeting small-scale investors who are likely unfamiliar with the ins and outs of buying and selling commercial real estate. The minimum investment required: $2,500.
“Part of our strategy is to be very high on transparency, very high on ease of access and very high on ease of use,” says Harold Hofer, a longtime real estate executive who is one of the leaders of Nexregen.
Through the Nexregen portal, a registered user can view available properties and download property descriptions, site plans, photos, aerial views, local demographics, prospectus documents and tenant rosters. Nexregen and its consultants assemble that information. All investor research and transactions can be done solely online, but Nexregen does provide assistance by phone or email. For now, investors must pay by check, but Nexregen hopes to offer a credit-card option soon.
Nexregen also will post monthly financial reports on each property in its portfolio as well as quarterly business summaries.
“Through Nexregen, you don’t have to be a Donald Trump to enjoy the benefits of owning commercial real estate,” says Wirta, who retired as CEO of CBRE in 2005 but still is vice chairman of the company. CBRE has no financial ties to Nexregen.
Currently, Nexregen can sell shares only to residents of Texas, the lone state where the REIT is registered to offer securities. However, Nexregen plans to obtain regulatory approval to expand to other states next year — including, Florida and Illinois — and intends to branch out to other countries in late 2008.
John McDermott, senior vice president of commercial real estatefirm Sperry Van Ness Inc., says he thinks the Nexregen concept will take off and other commercial real estate outfits will follow with similar offerings.
Hofer says Nexregen will hunt for income-producing properties with price tags of $10 million to $20 million that produce strong cash flow.
Nexregen’s debut property is the 148,870 sq. ft. Firewheel Village Shopping Center in the Dallas suburb of Garland. A Nexregen limited partnership bought the fully leased retail center in May for $13.4 million, or $91 per sq. ft. The average rental rate is $6.58 per sq. ft. per year.
As of mid-November, 14 investors had purchased a total of 66 shares in the shopping center at $2,500 apiece. For that property, Nexregen has earmarked 3% of the gross proceeds for operating costs.
Nexregen currently focuses on retail real estate such as the Garland center but plans to pursue the apartment market as well. A firm timetable for Nexregen’s move into the apartment sector hasn’t been set.
Nexregen retains a 10% stake in all of its investment properties. Once investors have reaped an estimated 7% return on investment, Nexregen will collect 25% of the profit and investors will hang onto the remaining 75%, Wirta says. Nexregen envisions owning the Garland center and all of its other properties for three to seven years.
Unlike most private REITs, Nexregen cuts out the middleman — financial planners and broker-dealers and doesn’t charge transaction fees. Typically, as much as 15% of the share cost goes toward commissions, according to Nexregen.
Even so, Sheridan Titman, a professor of finance at the University of Texas who has researched REITs, isn’t so sure Nexregen is the best bet for real estate investors. “I like the idea of a no-load private REIT,” he says. “However, I think investors may be better off buying a diversified portfolio of public REITs.”
Titman and other observers say traditional REITs offer a broader-based investment approach, thereby spreading the risk among various properties, while a Nexregen investment is tethered to the ups and downs of a single property. However, Wirta points out that an investor may be unaware of precisely which properties are in a traditional REIT’s portfolio, while a Nexregen investor can become intimately familiar with a property.
Nonetheless, Wirta and Hofer understand the concerns of doubters. That’s why Nexregen extends a money-back guarantee to each investor for one year. Wirta says the guarantee, along with Nexregen’s 10% stake in each property and the ability for an investor to tour a property, should help allay investors' fears.
“This could be a nothing or a very big thing. We’re certainly hoping for the latter,” Wirta says. “Now, we have to see how it plays in Poughkeepsie.”