The president and CEO of Shopoff Properties Trust
based in Irvine, Calif., is in the process of raising as much as
$200 million through an initial public offering (IPO) of a hybrid
REIT. He expects to make investments that offer the potential for an
annual internal rate of return north of 30%. The unlisted REIT will
make equity investments in land and and also invest in debt through
short-term bridge loans, mezzanine loans or discounted purchases of
debt. About 30% of the funds are slated for commercial real estate
land.
Shopoff opted for the unlisted REIT vehicle because
he felt that the publicly traded REITs have too much of a short-term,
mark-to-market focus that would not suit his long-term investment
strategy. NREI recently spoke to Shopoff about the strategies of his
new venture.
NREI: What sort of
investors are you targeting for your REIT?
Shopoff: Our investors are generally professional
people including lawyers and physicians. We have a large number of
self-employed individuals. The minimum investment is 2,000 shares,
which are currently priced at $9.50 per share. There is no
redemption provision for our shareholders, therefore they are
committing to this investment for the life of our underlying
purchases. We commit to a liquidity event within nine years.
NREI: What is the
greatest investment opportunity in today's market?
Shopoff: The land markets are in total upheaval
right now. The sellers are primarily homebuilders and developers,
and our biggest activity now is with financial institutions,
primarily regional banks. I think they are going to be better
sellers [of land they foreclose on] in the short term.
NREI: Are you going
to focus solely on undeveloped land?
Shopoff: What we're looking at today is buying a
project where the developer began the development process and has
run out of funding. We also have the ability to do some lending. And
given the challenge in the capital markets, we may do some higher-yield
lending.
NREI: What are your
criteria for acquisitions?
Shopoff: We are looking for property that has
potential for sharp increase in value due to a recent or potential
future zoning change, or other opportunity where the property may
lie in the path of progress. We have a geographic preference for
California, Nevada, Arizona, Hawaii, and Texas, primarily states
that have had significant run-ups [in real estate values].
NREI: What are your
plans for commercial land?
Shopoff: I think there is going to be some
downward pressure on pricing in the income property business. We are
going to see how that shakes out before we undertake any vertical
development of our sites, which would be the actual construction of
buildings that would be held to rent or sell.
