But next week the building is expected to make its debut on the Nasdaq, marking what may be the first chance, experts say, for the public to buy stock in a single building.
The company bringing the building to market is Etre Financial LLC, based in New York. Etre is attempting to create what it calls a first-of-its-kind platform for investing in shares of individual commercial real estate properties.
Etre announced in October that it planned to create public real estate investment trusts (REITs), companies that hold property long-term and pass on almost all of their taxable income to investors, for individual buildings.
Because each company would have only one asset, stock in each would equate to stock of a single building.
At the time, Etre didn’t have any buildings to offer but it has since arranged a deal that would make 1201 Connecticut its first. Utilizing an incentive created by the 2012 Jumpstart Our Business Startups (JOBS) Act, in February, Etre filed papers with the Securities and Exchange Commission for an initial public offering aimed at raising $52.3 million in net proceeds to buy the building from its current owner, Mack-Cali Realty Corp.
The $52.3 million would go toward a purchase price of $85.1 million, according to SEC filings. Mack-Cali purchased the property for $32.2 million in 1999, according to property records.
“This is a really novel and totally forward-looking approach to commercial real estate,” Paul Frischer, president and chief executive of Etre, said in a presentation to investors.
Jesse Stein, Etre’s co-founder and executive managing director, said in a press release that the platform “provides investors with the ability to create their own diversified real estate portfolios and allocate investments based on geographic, asset type, and yield criteria.”
The IPO is expected to take place next week, with a ticker of ECAV and an offering price of between $14 and $16 a share. Morgan Stanley would provide a 10-year, $42.5 million loan to finance the purchase and the services firm JLL would manage the building.
Commercial real estate analysts say the idea of creating REITs for single properties is an unusual if not unprecedented idea. Other REITs have been created to own a small number of assets, such as Empire State Realty Trust (ESRT), which was created last year to own 12 office buildings including the Empire State Building, and a handful of other properties.
In an interview with Forbes last year, Anthony E. Malkin, chairman, chief executive and president of Empire State Realty Trust, was asked if he considered creating a company just for the Empire State Building. But he said “there is not any industry expert with whom we have spoken who can point to a success, or believes that there could be a success, from any single-asset REIT.”
“A stand-alone REIT would bear many of the same ongoing expenses of a REIT owning a portfolio of properties, but without the benefit of diversification which REIT investors want. We believe it would be far less attractive to investors and diminish everyone’s value,” Maklin told Forbes.
Start-ups led by Fundrise, based in the District, have tried something somewhat similar, by creating a way to allow property owners to crowd source stakes in individual buildings. More than $10 million has been raised on Fundrise, but there is no exchange on which ownership stakes can be traded.
In noting Etre’s IPO filing, CoStar Group, the real estate data firm based in D.C. called 1201 Connecticut “the first property set as a test case” for the idea.
Jonathan Morris, a former Boston Properties vice president who has been working at or studying REITs since 1991, said he had never heard of a REIT formed to own a single asset. “It is the only one, to my knowledge,” he said.
Morris said he found the idea encouraging for middle class investors who want to quickly add familiar properties to their investment portfolio. For real estate companies, he said, it might become a rapid way to raise capital. “You have millions of people that want to invest in skyscrapers in Manhattan, in Boston, in Seattle, in San Francisco,” he said.
Similar to Maklin, however, Morris said there was a concern about the costliness of creating and operating companies for each building. “That’s the issue that could be problematic. I don’t know how they’ll get around that,” he said.
A spokesman for Etre declined to comment on the IPO, citing SEC rules.
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