of the finance slack once held by banks. “Currently, a private
market for real estate doesn’t exist, so blind pools remain viable,”
Colony Financial, Inc. (NYSE: CLNY ), a blind-pool mortgage REIT located in California, went public in the fall. According to Colony’s CFO, Darren Tangen, the company has benefited
from the dislocation in the real estate and debt markets. “Colony
is in a perfect position to continue acquiring distressed loans
and originating new ones, because so much of the debt market
remains stuck,” Tangen says.
To date, it has been pretty simple to file with the Securities
and Exchange Commission (SEC) for blind-pool IPOs, where
audits, financials and even three-year histories are not generally
disclosed. One such transaction was the recent offering of Jon
Bortz’s Pebblebrook Hotel Trust (NYSE: PEB). In the filing,
Bortz listed only himself as the principal.
“IPOs like Pebblebrook and Colony Financial were really just
amalgams of cash and high-profile real estate people behind the
transactions, and that’s been good enough for the markets right
now,” Cicco says.
Pebblebrook’s CFO Ray Martz notes that, while the company
targeted a $350 million capital raise, its offering was oversubscribed,
bringing in more that $400 million with the IPO. “Thus far, our offering has been very well received, and we have an enviable roster of
the top REIT dedicated investors in the space,” he says.
Martz says he is not a fan of the term “blind pool” and prefers
“start up.” Whatever you want to call it, his company is now
armed with an arsenal of cash and set to go on a buying spree for
Yet, the challenge facing Martz and other blind-pool management teams has proven to be finding appealing deals in a market
where there remains a distinct gap between buyers and sellers.
“Investing capital right now in a market that’s not transacting
seems to be a real problem,” says Glenn Mueller, professor with
the Franklin L. Burns School of Real Estate and Construction
Management at the University of Denver.
However, Martz said barring any unforeseen catastrophic
events, he feels the company is positioned very well as a cash buyer
without the issues that many legacy REITs face, such as sparse
liquidity and overt debt. He also says Pebblebrok doesn’t face the
potential to fall prey to what he describes as “the slowest moving
train wreck of all in commercial real estate,” commercial mortgage-backed securities (CMBS). With billions in commercial loans set
to mature in the near term and refinancing extremely difficult to
find for many owners whose properties are below the waterline,
CMBS remains one of the industry’s greatest challenges.
In contrast to Pebblebrook, Terreno Realty Corporation
(NYSE: TRNO), a blind-pool REIT targeting industrial real
estate, got off to a rocky start. In January 2010, the company
was forced to delay its IPO. Then, when Terreno’s shares hit the
market in February, the offering generated $175 million, roughly
half of what the company anticipated.
Optimism about Terreno’s long-term prospects does appear to
be building, though. After quickly dropping from its initial price
Historical REIT IPOs
Number of IPOs and
Amount Raised ($mil)
2,646 7,980 3,789 491 2,271 1,820
2002 2003 2004 2005 2006 2007 2008 2009 2010
of $20.00 per share to $18.00 at the closing bell in its first day of
trading, the stock price had rallied to roughly $19.60 per share
near the end of March.
Because Terreno top executives Blake Baird and Mike Coke
are formerly of AMB Property Corp. (NYSE: AMB), many
insiders believe they will be able to piece deals together based on
their past performance. Analysts at KeyBanc Capital Markets
recently initiated coverage of the company, rating the stock a
“buy” with a share price target of $23.00.
Is the Pool Party Over?
Despite whatever successes companies like Terreno and Pebblebrook have had, some observers are speculating that the blind-pool movement is on its last legs. Count Dan Fasulo, managing
director at Real Capital Analytics, among that group.
“The distressed wave that many of these purveyors of blind
pools were banking on didn’t materialize and won’t materialize
because Washington created many opportunities, so lenders
didn’t have to liquidate their portfolios,” Fasulo says. “Many of
these blind pools are sitting on a mound of cash now and have
some hard decisions in front of them. The ‘generational opportunities’ that many of them promised investors won’t materialize.”
Michael Hudgins, vice president and global REIT strategist
at J.P. Morgan Asset Management, agrees. “When the market
believed that we would see distress with a capital ‘D,’ blind pools
made a lot of sense,” Hudgins said. He added that investors were
willing to wait months or years for return on their investment
until that capital could be put to work because the opportunities
were believed to be so phenomenal. “However, expectations are
now that distress, if we see it, will be with a lowercase ‘d’ and the
REIT.com Video: To view a video with Pebblebrook's
Ray Martz, visit