Has anyone started their own local REIT?

Question

I have a piece of property that I would like to build out into townhomes (@60) and keep them to rent. I own the land outright and am a contractor. I have the idea of starting a REIT to fund and hold the project with no debt, and to add other properties to the REIT as opportunities arise.

If anyone in the group has formed/managed a REIT in the past/present, please let me know if you would be willing to talk with me about the process/advantages/disadvantages of taking this route.

Evan Polaski · Answer

@Brian Desi, there is a lot of misunderstanding about what a REIT is and what a syndication is.  A syndication is a general term for raising capital from multiple people to buy property.  A REIT is a very specific tax structure.

I am in investor in a syndicated Fund (yes a Fund is also a syndication) that is an LP structure and holds subsidiary REITs to help shelter tax implications at the property level.  The two are not mutually exclusive.

Now, onto your thoughts Brian.  You can create a syndication that has a perpetual life.  The issue is getting investors to buy into it.  Many will want liquidity at some point or another, and your structure will need to account for that or else you will be dead in the water in trying to raise money.  You could setup an open ended LP structure, an evergreen structure, you could create a convertible structure.  You could raise convertible or traditional debt.

Really the options are plentiful, with the only limitation being knowing what your investors want and will invest in.

Sean Morrison · Answer

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

A REIT is a very complicated structure with a ton of regulations. For example, you must have at least 100 investors, no five of which can own more than 50% of the shares. And 90% of its income must be paid in distributions each year. Typically, REITs are reserved for going public, and as has been mentioned, doing an IPO is incredibly expensive. If the goal is to do one deal, even with 60 doors, a syndication is a much simpler process. Talk to a syndication attorney about how this could be structured to attract investors.

Brock Mogensen · Answer

I think a syndication structure is what you're looking to do.  A REIT is a publicly traded vehicle and usually only makes sense if you have billions of dollars under management.  Legal costs to start a REIT is likely a million dollars alone.

Brian Desi · Answer

I was aware of the syndication option, but I basically am looking to hold these for very extended period of time. Basically until I croak. My understanding is that syndications end after 5-10 yrs. Can you please mention the reasons why a syndication would be better for these purposes?

Taylor L. · Answer

You probably wouldn't do this under a REIT. A regular syndication would work. Just dig more into real estate syndication and you'll learn a ton about how they're structured.

Has anyone started their own local REIT?

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