Investing In New York City REITs

New York City’s real estate market includes some of the most high-profile properties in the world. It is also one of the most expensive in which to invest (and why so many residents are renters). If you can’t afford to invest directly in New York City’s real estate market there are several publicly traded real estate investment trusts (REITs) that can give you exposure.

REITs are essentially real estate companies that invest directly in real estate through properties or mortgages. The Internal Revenue Service requires REITs to pay the majority of taxable profits in dividends to shareholders. Companies with REIT status do not pay corporate income tax.

You can buy and sell shares of REITs. Like stocks they trade on an exchange. There are three publicly-traded REITs that focus mainly on New York City real estate.

SL Green

SL Green Realty Corp. (SLG) maintains that it's New York City’s largest office landlord. It primarily focuses on acquiring, developing and managing commercial properties in Manhattan. Its portfolio holds ownership interests in 96 buildings in Manhattan. SL Green also holds ownership interests in 35 buildings in Brooklyn, Long Island, Westchester County, Connecticut and New Jersey.

One of its trophy properties includes 220 East 42nd Street, which is known as The News Building. Its lobby houses the iconic rotating globe featured in the 1950s Superman television series.

Financial services firm Citigroup Inc. (C), meanwhile, is one of SL Green’s high profile tenants. Its Global Wealth Management and Global Trading divisions are headquartered in a two building campus located at 388-90 Greenwich Street in Tribeca.

Shares of SL Green trade on the NYSE. Its stock price has ranged between $89.05 - $113.08 in the last year.

Empire State Realty Trust

The aptly named Empire State Realty Trust Inc. (ESRT) boasts the Empire State Building among properties in its portfolio. Altogether its portfolio includes 14 office properties and six retail properties in Manhattan and the greater New York City metropolitan area.

Nine of the office properties, including the Empire State Building, are in Midtown Manhattan. The remainder are in Westchester County, New York and Fairfield County, Connecticut. The six retail properties are located in Manhattan and Westport, Conn.

The locations of Empire State Realty Trust’s Manhattan office and retail properties include Union Square, Grand Central, Columbus Circle and several properties along Broadway.

Empire State Realty Trust’s shares also trade on the NYSE. Its stock price has ranged between $13.20 - 17.34 in the last year.

New York REIT

American Realty Capital's New York REIT Inc. (NYRT) became the latest entrant in the New York City REIT universe when it debuted on the NYSE in April of this year. It acquires income-producing commercial real estate and owns stakes in 22 properties, which are predominantly office and retail.

Properties in its portfolio include Worldwide Plaza in Midtown and the Twitter Building, located in Manhattan’s Silicon Alley.

Stay tuned as the future of this REIT unfolds. In October 2014, American Realty Capital announced that it had hired Barclays Capital and RCS Capital as financial advisors to evaluate strategic options to boost shareholder value. Empire State Realty Trust has expressed an interest in acquiring New York REIT, according to reports.

"It should come as no surprise that management and the board of directors are disappointed and believe that the market is undervaluing our shares," Michael Happel, President of the New York REIT, said in the announcement. "In light of the inquiries we have received involving potential strategic opportunities, our board felt strongly that we should engage financial advisors to provide fully-informed, objective advice to assist management in assessing all of our options," he added.

Shares have ranged between $9.51 - $12.32 since the REIT started trading.

Risks and Rewards

Because the three REITs detailed above are publicly traded they are highly liquid investments. Remember, you can buy and sell their shares like stocks. They also provide diversification, potential capital appreciation and an affordable way to for investors to gain exposure to New York City’s commercial real estate market.

Another benefit to investing in REITs is that they generate dividend income for investors. They are required to distribute at least 90% of taxable income each year to shareholders through dividends.

Like any investment there are risks involved in investing in REITs. Returns are not guaranteed.

REITs are also unique as rising interest rates can affect their returns. To make acquisitions REITs rely on debt or borrowed money. When interest rates rise, the cost of borrowing does as well, cutting into profits.

The Bottom Line

New York City has three publicly traded REITs focusing on its commercial real estate market. They offer liquidity, diversification and an affordable way for investors to gain exposure to one of the most dynamic real estate markets in the world. They also pay shareholders dividends and offer potential capital appreciation for moderate to long-term investors.

A NY REIT tumbles 30% on accounting ills

Shares of American Realty Capital Properties plunged on Wednesday after the Manhattan-based company, one of several real estate investment companies founded by Chairman Nick Schorsch, announced that it had misrepresented its earnings and had dismissed two top accounting executives.

By midday Wednesday, shares of the publicly traded real estate investment trust had plunged 30%. Among the disclosures the company made was that it had inflated a key earnings measure by about $23 million in the first half of 2014 and that its financial statements from 2013 "should no longer be relied upon."

"The accounting issues are unacceptable, and we are taking the personnel and other actions necessary to ensure that this does not happen again," CEO David Kay said in a statement released with ARCP's disclosure of its accounting trouble.

The firm said it had fired its CFO, Brian Block, and its chief accounting officer, Lisa McAlister, and replaced them.

ARCP is part of a group of real estate investment companies founded by Mr. Schorsch, who acquired a stake in West Side office tower Worldwide Plaza last year in a deal that valued that building at $1.45 billion. Mr. Schorsch made that purchase through another investment trust entity called New York REIT. He is the chairman of both that firm and ARCP.

As that acquisition was being made in 2013, RXR Realty, a major commercial landlord in the city, launched a lawsuit against New York REIT. The suit alleged that Mr. Schorsch’s firm had originally agreed to partner with RXR to buy Worldwide Plaza, but instead used the company’s in-depth financial analysis of the property to make its own bid without RXR. New York REIT won that suit and completed its purchase of the stake alone.

A lawyer who represents shareholders of ARCP said that owners of the company’s stock were considering a lawsuit.

"Reading between the lines, our suspicion is that the two top accounting officers saw the error in the earnings and let it go," said Jeff Block, a lawyer at Block & Levitan, based in Boston. "You have a very profound drop in value any time you have accounting issues like this because it calls into question the credibility and honesty of the company."

According to Forbes, ARCP was created by the merger of two nontraded REITs founded by Mr. Schorsch. This month, he stepped down as CEO of the company, handing over the reins to Mr. Kay in a move that had been done to increase financial transparency, reports suggested.

2 Commercial Property Giants to Combine in $7.2 Billion Deal

Summary:  Cole Real Estate Investments has agreed to be acquired (along with $4 billion of Cole's debt) by American Realty Capital Properties in a $7.2 billion cash and stock deal that will combine two of the largest commercial real estate owners in the the US, after nearly seven months of negotiations.  This comes after American Realty spent the summer acquiring companies to increase its capitalization.


New York --(New York Times DealBook)--
American Realty Capital Properties and Cole Real Estate Investments, two of the largest commercial property owners in the country, are finally seeing eye to eye.

The two real estate investment trusts agreed to a $7.2 billion deal on Wednesday in which American Realty will buy Cole with a mix of cash and stock, bringing an end to tensions between the companies that have simmered much of the last yearThe combined company will be one of the biggest commercial landlords in the country, leasing space to companies including FedEx, AT&T, CVS, Walgreens and Home Depot. American Realty will also take on about $4 billion in debt from Cole.

The origins of the deal date to March, when American Realty made an unsolicited offer for Cole that would have derailed Cole’s move to go public. Cole rejected the offer and went on to list on the New York Stock Exchange. Since the listing in June, Cole shares have climbed more than 17 percent.

Nonetheless, American Realty still wanted to make a deal. It will pay 14 percent above Cole’s closing stock price on Tuesday of $12.82, and assume significant new debt in taking over the larger company.

“These two companies were meant to be together,” American Realty’s chief executive Nicholas S. Schorsch said in an interview. “This is a one plus one equals four or five scenario.”

Under the terms of the deal, Cole stockholders can choose either 1.0929 shares of American Realty stock, valued at $14.59, or $13.82 cash for each Cole share.

Commercial real estate investment trusts are in vogue right now because they pay almost no corporate taxes and return most earnings to investors through dividends, making them attractive stocks for investors to own.

Both American Realty and Cole operate in the lucrative “net lease” market, meaning they offer large and stable commercial customers long-term leases, and leave the maintenance and operations of the properties up to the tenants.

Over the summer, as Cole’s shares debuted on the public market, American Realty, which had been the smaller of the two companies, went on a shopping spree, acquiring several billion dollars in assets.

“These are two comparably sized companies now,” Cole’s chief executive Marc Nemer said in an interview. “The discussions this go round were friendly and were all about maximizing value for shareholders.”

As part of the deal, American Realty plans to increase its dividend to $1. And despite taking on additional debt, it expects its overall leverage ratio will come down by the end of next year.

American Realty shares were down 1.5 percent at midday on Wednesday.

“This was a once in a life time moment when you actually have a perfect storm for these two companies to come together,” said an ebullient Mr. Schorsch. “You can say put Ford and General Motors together, but it doesn’t always work. This really is a phenomenal union in a moment in time that may never come again.”

Barclays and RCS Capital advised American Realty, and Proskauer Rose provided legal advice. Goldman Sachs advised Cole, and three law firms — Wachtell, Lipton, Rosen & Katz; Venable; and Morris, Manning and Martin — provided legal advice. Christopher H. Cole, the chief executive of Cole, and other executives received legal advice from Sullivan & Cromwell.http://dealbook.nytimes.com/2013/10/23/2-big-commercial-property-owners-to-combine-in-11-2-billion-deal/