11/04/2009

Net-Lease REIT Pursues Institutional Capital

Broadstone Real Estate, which initially raised equity from wealthy individuals for a private REIT that invests in triple-net-lease properties, is now reaching out to institutional investors.

The Rochester, N.Y., company lined up $42 million of initial capital, which it leveraged into $84 million of acquisitions since the beginning of last year. Now it wants to increase the REIT's equity to $500 million, which would translate into $1 billion of total investment power. Last month, it began soliciting family offices, fund of funds and small institutions.

The vehicle, Broadstone Net Lease, is shooting for a 10-11% return, primarily through the acquisition of retail and medical-office buildings that are triple-net leased to a single tenant for 15-20 years. It will consider properties valued at up to $10 million, although most purchases will have price tags of $2 million or less. The goal would be to spend the new war chest over five years.

Some other fund operators that make core investments in net-lease properties have also started soliciting institutional investors, in the hope that they will be more interested in conservative investments after suffering losses in the market downturn. For example, AEI Fund Management of St. Paul, Minn., recently began seeking $300 million for its first institutional-backed fund targeting core net-leased properties, after sponsoring 34 similar vehicles backed by wealthy individuals.

Broadstone, which declined to comment, is offering investors a 7% quarterly dividend. It receives a 1% management fee on invested equity, a 1% acquisition fee and a 3% annual property-management fee.

Broadstone was one of two units spun off in 2004 from Home Properties, a publicly traded apartment REIT in Rochester, N.Y., that was founded in 1967 by brothers Norman and Nelson Leenhouts. After a reorganization to accommodate estate planning, Broadstone was launched in 2006.

Norman Leenhouts is chairman of Broadstone. His daughter, Amy Tait, is chief executive. Her husband, Bob Tait, is president. Norman and Nelson Leenhouts remain as co-chairmen of Home Properties.

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