REIT Rocket Man Launches New York City Trust
When I try to translate New York real estate into words, I cannot help to think about the lyrics to “Rocket Man.” Maybe the only difference is that Nicholas Schorsch is not burning out his fuse alone.
Instead, thousands of investors have fueled the engine called American Realty Capital where Schorsch serves as the chairman, chief executive, and co-founder. The Park Avenue-based alternative investment financial services firm has grown into a dominating REIT powerhouse in which Schorsch is responsible for creating an amazing pipeline of REIT listings, IPOs and portfolio sales, the latest of which listed on Tuesday.
It’s hard enough to build a REIT from scratch and provide investors with attractive shareholder returns; however, Schorsch has become a pioneer for incubating non-traded REITs and monetizing them for the benefit of retail investors. That the 53 year old entrepreneur has successfully completed five full-cycle liquidity events enabling hundreds of thousands to build wealth in commercial real estate funds is not a matter of luck. (American Realty Capital Healthcare Trust (HCT) listed shares last week).
This week, Schorsch will add a sixth liquidity event to his resume. And this one is close to home: New York REIT, Inc. (NYRT) will list approximately 176 million shares this week on the NYSE as the company offers a tender price of $10.75.
NYRT will be the world’s only “pure play” New York City REIT, meaning that 100 percent of the assets will be in the New York area. The peer group for NYRT consists of SL Green (SLG), Empire State Realty Trust (ESRT), Vornado Realty (VNO), Brookfield Office Properties (BPO), and Boston Properties (BXP), all of which have an interest in New York City but far from 100 percent exposure.
NYRT’s portfolio consists of 23 properties and around 3.1 million square feet of space. Nearly all of the assets (96 percent) are located in Manhattan, with a few in Brooklyn (4 percent) and Queens (0.3 percent). NYRT has assembled an impressive portfolio that has over 94 percent occupancy (compared with other REITs that have less favorable occupancy levels). The Manhattan office portfolio includes impressive addresses such as 256 West 38th Street, 229 West 36th Street, 333 West 34th Street, 218 West 18th Street, 306 East 61st Street, 1440 Broadway, 50 Varick Street, and 1 Worldwide Plaza (owned in a JV).
With a focus on Class B office investments, NYRT has stayed away from the more competitive trophies that cater to the larger investment banks. Instead, NYRT hones in on on “new word” properties where the up and coming REIT has taken advantage of the banks and investors that were sidelined during the Great Recession.
With asking rents for New York office space far below 2008 peak levels (they’re down by around 17 percent), NYRT’s vintage portfolio should boost rent growth and provide investors with substantial upside from the improving growth metrics. NYRT’s balance sheet appears solid and I anticipate that Schorsch will follow the same course as his other public REITs have and achieve investment-grade credit ratings quickly.
Of course, Schorsch is also known for high-yielding dividends and staying on that same sheet of music, NYRT should be the highest paying Office REIT with a projected payout (FFO payout ratio) of around 70 percent–another rocket ship REIT. Indeed, Schorsch is a rising superstar in commercial real estate and his track record for success is growing. It may be time to consider owning a piece of the “big apple” and if Mr. Market affords me that opportunity next week, I will become an investor in a “New York Minute”.
Brad Thomas is a contributor for Commercial Observer and he is also the Editor of a monthly newsletter called The Intelligent REIT Investor.