Factors Supporting Case for Investing in Agriculture

The increasing demand for food products from developing economies has triggered the need for rapid improvements in agricultural productivity all the way to final consumption. This creates a variety of investment opportunities in agriculture-related sectors in both the short and long run. The present food system cannot be defined as ‘sustainable’ (a sustainable system being one that ensures the present and future quality of all aspects of life). On the contrary it seems that current food consumption trends are moving very quickly in the opposite direction.

Zero Debt REITs?

The ability to arrive at an optimum capital structure can be source of significant differentiator.

Conundrum: Since REITs do not benefit from interest tax shield the question is why have any debt at all? Spread between low cost financing and acquisition at high cap rates do increase earnings, but that also makes the REIT riskier , raises the cost of distress. The enterprise value of the REIT cannot change by taking on cheaper debt, so why take it? More debt also reduces flexibility to invest more opportunistically when property values fall etc. Having a zero debt REIT can be a very unique differentiator.

Consortium or Club Private Equity Deals

Why Am I Ok With Consortium or Club Private Equity Deals?

Some Limited Partners are averse to club deals for it concentrates deal risk for them. However, I see many advantages to such arrangements, especially during mega multi billion $ transactions. We see around 20-25 such deals a year, and whilst not the norm, they do occur. These do bring up unique consortium dynamics, which I will separately touch upon.


Non-Traded REITs: Physician Heal Thyself

We spent a few years as active participants in the Non-Traded REIT industry. We now offer some insights, gleaned hopefully with the wisdom and humility that only comes with reflection and hindsight.






Life Cycles

Acquisition Strategies

Distribution Coverage

Reasonable Leverage

Affiliated Transactions


Why is External Management in REITs Frowned Upon?

The external or outside management requirement is perceived to create a conflict of interest since REIT sponsors usually own the management company and not much of the REITs themselves. They have more of an incentive to grow the REIT to increase assets under management, and hence receive more management fees, rather than manage the REIT to maximize shareholder value. By contrast, internally managed REITs staff compensation and incentive is based on corporate level performance rather than property level cash flows – and are perceived as providing better alignment of management and shareholder interests.

Venture Funds Should Stop Throwing Good Money After Bad

I am of the view that LPs prevail on their GPs to stop throwing good money after bad in their risky early stage series A/B investments, especially within FinTech. They now need start writing down investments, close down follow-on funding and institute layoffs and firm closures. The U.S. economy is expected to languish over the next two years as policy stabilization efforts are unlikely to provide a boost to financial conditions in the short term. My recession scenarios capture the potential for more crippling damage to financial inter-mediation and slower economic growth beyond the cyclical horizon. Things are going to be rough and risky early stage FinTech firms will be worst affected.

The biggest issue is GPs will disregard this advice for they have a vested interest in keeping investments going and perpetuating management fees. I had written a proprietary game ( game theory) to arrive at Nash Equilibrium in the LP-GP relationship some years ago. Some of my findings are expressed in a dated research piece, that I think is very relevant in 2020.

Non Traded REITs Podcast

Non-Traded REITs have been in the news recently. They typically invest in sector specific real estate programs, targeting stable, fully occupied properties subject to long-term leases to strong credit tenants. They are thus able to generate immediate, durable, rent-driven cash flows from the inception of the investment as capital is deployed without a cash drag. Much like traditional private equity core real estate investing, they aggregate property through acquisitions and build diversified portfolios by tenant, geography, industry and lease duration. They return value from these aggregated portfolios via asset sales, public listings or mergers, usually over a five- to seven-year timeframe.

My take in a past podcast interview: 1:19 The case; 6 Market size;7:30 Investor type;9:55 Illiquidity premia; 11:52 Regulation; 13 Returns; 14:45 Capital raising; 16 Growth; 18 Transparency and industry evolution

Sameer Jain discusses the advantages of non-traded REITs as compared with publicly traded REITs. During this interview he discusses the size and historic returns of the non-traded REIT industry, as well as its regulatory environment, which types of investors they are best suited to, and what investors get in return for the illiquid nature of this particular real estate investment vehicle.