Missouri Valley REIT takes form in Springfield

“It’s like a mutual fund for real estate.”

That’s the simplest way Phil Williams knows how to describe a real estate investment trust. With little known about REITs in southwest Missouri outside the industry, Williams often finds himself explaining the concept.

“Most of our capital is raised in places outside the Springfield market,” said the chief administrative officer for Springfield-based Missouri Valley REIT Inc. “It would be better if there was a larger knowledge base in the market, but once people hear about it, there is no hesitation.”

Congress created REITs in 1960 to give Americans the opportunity to invest in income-producing real estate in a manner similar to how many invest in stocks and bonds through mutual funds. Income-producing real estate refers to land and the improvements on it, such as apartments, offices or hotels, according to the National Association of Real Estate Investment Trusts.

REITs may invest in the properties themselves, generating income through the collection of rent, or it may invest in mortgages or mortgage securities tied to the properties, helping to finance the properties and generating interest income.

According to NAREIT, 676 properties representing $10.06 billion are controlled by REITs in the Show-Me State, including Kansas City’s Market Station and St. Louis’ Town & County Shopping Center, which houses a Whole Foods Market, among others.

Locally, McLean, Va.-based REIT Gladstone Commercial (Nasdaq: GOOD) purchased the 78,000-square-foot T-Mobile Customer Service Center in north Springfield for nearly $16 million in 2011. That same year Jared Enterprises Inc. sold 14 convenience store properties leased to Kum & Go to a New York-based REIT for $22 million.

NAREIT lists Kansas City-based EPR Properties Inc. (NYSE: EPR) as the only publicly-traded REIT in Missouri. The specialty REIT invests in three primary segments – entertainment, recreation and education – and currently owns $3.6 billion in more than 200 properties spread across 38 states, Washington, D.C., and Canada.

As of March 31, REITs controlled about $1 trillion in commercial real estate assets in America and 204 were listed with the Securities and Exchange Commission. Of those, 179 are listed publicly on the New York Stock Exchange. Nationwide, REITs paid out $34 billion in dividends in 2013 and have a combined equity market capitalization of $719 billion.
 
Building a REIT
Williams is one of five private real estate investors who started MVREIT in 2008 after discussions with a property management partner in North Dakota.

“We instantly saw the benefit a REIT could have and the need in this area,” said Williams, who also is president and CEO of Missouri Valley REIT Management LLC, which advises the trust.

MVREIT made its first offer in 2009 and began the long process of organization.

According to the national association, to qualify as a REIT, a company must invest at least 75 percent of its total assets in real estate; derive at least 75 percent of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate; pay at least 90 percent of its taxable income in the form of shareholder dividends; operate as a taxable corporation; be managed by a board of directors or trustees; have a minimum of 100 shareholders; and have no more than 50 percent of its shares held by five or fewer individuals.

“It took a while to iron out all the paperwork, but we moved into acquisition mode last fall,” Williams said of the now $40 million trust.

Focusing on multifamily housing, MVREIT has purchased more than $27 million worth of properties since Jan. 1, including Essex Place, The Gazebo apartments and the TLC Properties-managed Cambridge Park apartments.

TLC Properties Executive Director Sam M. Coryell said nothing has changed in the property’s day-to-day operations, but the sale has made him feel more accountable.

“When you own and operate a property, you know everything about it and there is less need for documentation,” he said, declining to disclose terms of the sale. “When someone else owns it, you need to document everything to ensure the property is run well. It ups the paperwork in the clerical world a bit.”

On the MVREIT board since 2009 and a shareholder since 2012, Coryell said he was familiar with the REIT long before the sale of Cambridge Park.

“I believe in what they are doing there, and I think REITs have a real growth potential in this area,” he said.

Overcoming the knowledge gap
MVREIT currently owns properties in the Springfield and Fargo, N.D., areas, but has expansion plans which include a target radius of six hours around the Queen City, excluding larger cities.

“You don’t see a heavy presence of REITs in cities like Springfield because this isn’t a first-tier market,” said R.B. Murray Co. Vice President Ross Murray. “They primarily focus on larger areas like Chicago, Dallas, New York and L.A. Because of that, there is a certain lack of knowledge associated with REITs.”

Any accredited investor by IRS standards can invest in a REIT, and Williams said shares are a dollar-for-dollar exchange.

“If you invest $50,000, you are going to get 50,000 in shares, or $1 million for 1 million,” he said. “It’s diversification. Instead of owning 10 percent of one apartment in Springfield, you own say 0.5 percent of 50 apartments scattered across the market.

“It’s the equivalent of owning a fraction of a bunch of companies on the stock exchange and spreading out the risk.”

Williams said, historically, REITs have a 10 percent annual ROI, however, a REIT in growth phase could have around 14 percent.

Murray believes REITs have a future in the Springfield market, but said he doesn’t think REITs are going to change the area dynamic anytime soon.

“There is no question at some point REITs will have more of a presence in the future,” he said. “But we have a (metropolitan statistical area) population of around 470,000 – that’s not small, but it’s not huge either.

“Investors typically want to invest in Class A properties; they invest in properties based on the yield or return on their investment. I don’t see REITs having much effect on the Springfield market yet.”

Williams said the MVREIT team continues to spread the word and educate Springfield-area investors.

“It’s better to educate the local investor to capture those local dollars,” he said. “I wouldn’t say people in the area don’t know about REITs, but I would say not enough people in the area know about them. That’s part of our goals moving forward.”[[In-content Ad]]