Why CA Ventures is using a private REIT for industrial growth

The Chicago-based manager, best known for its residential strategies, has launched Centris Industrial with the backing of three investment firms.

Chicago-based manager CA Ventures is looking to supercharge its entry into the warehouses and logistics market by launching a private REIT focused on the property types, PERE has learned.

The $13 billion firm has secured $350 million to get the vehicle, Centris Industrial, off the ground with commitments from a trio of New York-based investment firms: Davidson Kempner Capital Management, Monarch Alternative Capital and Long Pond Capital. Those tickets can be increased to a total of $650 million, depending on deployment opportunities that arise over the next six months.

Opting for the private REIT structure will enable the firm – best known for its expertise in residential sectors – to scale its build-to-core warehouse and logistics platform more quickly than if it were to opt for a traditional private fund and with fewer regulatory costs than with a listed offering, Michael Podboy, chief executive of Centris, told PERE.

Podboy: a private REIT structure lends itself to fast growth

“We wanted to build the right chassis to meet the market and its positive secular tailwinds, and we wanted it to be adaptable rather than a one-off model” Podboy said. “The pandemic came on fast and the enormous amount of stimulus that followed it was very fast, too. Sticking with that theme, we decided to build a chassis that would let us go faster and scale more rapidly.”

CA launched its industrial business in 2018 with the goal of deploying $500 million into the sector. Since then, the firm says it has overseen about $1 billion of acquisitions and developments in the space, primarily through joint ventures and separately managed accounts.

Podboy, the former chief financial officer, chief investment officer and treasurer of the Illinois-based listed retail REIT InvenTrust Properties, was appointed president of CA’s industrial business in 2019. He said the firm has between $700 million and $800 million of ongoing industrial development projects, all of which will continue to be managed by CA Ventures, separate from the Centris platform.

Between the rising adoption of ecommerce and the pandemic-era push for companies to strengthen their supply chain and inventory management networks, Podboy said there is an abundance of institutional capital that wants greater exposure to the space as quickly as possible.

“Capital is plentiful,” he said. “The thing that is limited is management teams and platforms in the space.”

A different kind of REIT

Also known as private placement REITs, private REITs are exempt from registering with the Securities and Exchange Commission under Regulation D of the Securities Act of 1933. This is the primary difference between these vehicles and their publicly traded and non-traded counterparts, and it can lead to substantial compliance cost savings, Jonathan Morris, a former REIT executive and current real estate advisor, told PERE.

“The cost of doing all of your SEC filings is extremely high,” Morris, now an adjunct professor at Georgetown University, said. “To be a public company, it can be $1.5 million a year above and beyond everything you spend anyway. A private REIT saves a lot of money by not doing quarterly filings.”

Without burden of compliance costs, private REITs bill themselves as being able to pay investors higher dividends. However, their lack of transparency and relatively small share of the overall REIT market makes performance data for private REITs hard to come by.

To qualify for Reg D exemptions, private REITs can only raise money from institutions or accredited individuals, those with at least $1 million of assets, annual income of $200,000 or jobs that deem them to be “sophisticated” investors. This is where they deviate from the public non-listed REITs that have become popular with private real estate’s biggest managers today. Vehicles such as Blackstone’s BREIT and Starwood’s SREIT must still register with the SEC and make regular disclosures. Yet, in exchange for those disclosures, they can access a large pool of individual investors without being subject to public market volatility.

Podboy said Centris plans to raise exclusively from institutional investors and managers for the foreseeable future. This enables the platform to avoid screening for accreditation status while also taking advantage of CA Venture’s network of investors and partners. It is also key to the thesis behind the vehicle.

“As investors scale they need platforms that are more scalable and sophisticated, too,” he said. “This is another tool in the tool belt to do that.”

Built for speed

Private REITs vary from open-end private funds in a few key ways, primarily related to how capital is raised and deployed.

Like any other REIT, capital is raised by issuing more shares. For institutional investors, buying shares in a REIT tends to be more straightforward process than committing to a private fund, which typically carries more layers of internal approvals, Podboy said.

Capital can also be put to work more quickly in a REIT structure, he added, because investors do not need to wait in an investment queue or for their capital to be called. The platform also has greater discretion as to how and when acquisitions are made. “We have the ability to act more quickly and use our balance sheet to make acquisitions,” Podboy said.

CA seeded the Centris platform with two projects: a 470,000 square-foot, three-building logistics campus in suburban Atlanta and a 1.2 million square-foot, two-building development in Houston. They have a combined price tag of $170 million. Podboy said Centris has a pipeline of roughly $3 billion of assets throughout the US.