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Research reports provide a detailed analysis of industry fundraising trends and insights across asset classes. With alternative investments on the ascendancy, research and data reports are especially useful in assessing risk and return performance of the different alternative assets. This week’s episode with Kevin Gannon, Chairman & CEO of Robert A. Stanger & Company, we examine the importance of utilizing authoritative data sources for investment decisions, with a focus on several periodicals published by Stanger.
Robert A. Stanger & Company is a nationally recognized investment banking firm that services a broad spectrum of asset owning and management companies, boards of directors, special committees, private and institutional investors, and financial services organizations.
Click the play button above to listen to our conversation.
- Ways to analyze real estate investment trust (REITs) with net asset value (NAV).
- How the NAV metric can help fund investors make buying and selling decisions.
- Predictions for 2022 within the alternative investment landscape.
- The potential to realize tax benefits via investments in alternatives such as Qualified Opportunity Funds and Delaware Statutory Trusts.
- How to utilize research reports to assess risk and return performance of the different alternative assets.
- Different types of products that will have the most traction relative to the others.
Featured On This Episode
Industry Spotlight: Robert A. Stanger & Company, Inc.
Founded in 1978, Robert A. Stanger & Company, Inc. is a nationally recognized investment banking firm with expertise in real estate, real estate securities, and alternative investment products, including non-listed REITs, BDCs, direct participation programs, and interval funds.
Learn More About Robert A. Stanger & Company, Inc.
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss diversification opportunities in the alts universe, including direct investments, DSTs, opportunity zones, private equity and more.
Jimmy: Welcome to the Alternative Investment Podcast. I’m your host, Jimmy Atkinson.
Andy: And I’m your cohost, Andy Hagans.
Jimmy: Andy, great to be back once again with you. On today’s episode, we’re going to be discussing alternative investment data and trends with our guest, Kevin Gannon, chairman and CEO of Robert A. Stanger and Company. Kevin joins us today from Shrewsbury, New Jersey. Kevin, welcome to the show.
Kevin: Thank you. Glad to be here.
Jimmy: Glad to have you on the podcast today with us, Kevin. I really admire your company and what they do. But for our listeners, can you tell us a little bit more about the company, Robert A. Stanger, and how does your firm help the alternative investment space?
Kevin: That’s a great question. Robert A. Stanger and Company is an investment banking firm. It goes back to 1978. I’ve been here since 1983. And I’m now the chairman and CEO. What we do fundamentally is, we’re investment bankers that focus on the alternative space. So we do mergers and acquisitions and those kinds of transactions involving all non-traded REITs and other similar products. We also do a lot of real estate appraisal work that supports our M&A business. But the real estate appraisal work is used to help drive NAVs on some of these non-traded REITs. So we’re pretty active with that, doing real estate appraisals. We collect data on about 25,000 untraded securities. We collect that data reported to brokerage firms and others to record on it, put on account statements. So we’re constantly tracking that data.
What people probably mostly know us for is our publishing business. We publish several periodicals dedicated to the alternative investment space, including the Stanger Report, which tracks the fee structures of non-traded REITs and non-traded business development companies. The Stanger Market Pulse, which tracks all the fundraising of all the alternative products, non-traded REITs, BDCs, preferred stocks, interval funds, Delaware Statutory Trust, OZ deals, we track all that in the Market Pulse. We have another periodical that’s pretty hot right now, the IPA/Stanger Monitor, and what that is, is a periodical that tracks the performance of non-traded REITs and BDCs. In the past, we never had a place to find that data, right? So we track it all for all non-traded REITs and BDCs, and it’s a pretty good bellwether of what’s going on in the space and how things are moving.
Additionally, on top of that, we publish the Interval Fund Report, which is like the Stanger Report that tracks everything going on in interval funds. And then lastly, this past year, we introduced a new series of publications and it’s research reports on non-traded REITs. So we cover many of the large non-traded REITs, and issue full-blown equity analyst research reports on the likes of Blackstone, Black Creek Diversified, Black Creek Industrial, which are now Ares products, Starwood, Hines, Jones Lang LaSalle, Nuveen. So we’re writing 30 page research reports several times a year covering everything they’re doing, everything from their fundraising, their fee structure, their redemption queue, how the redemptions have worked out, what their performance has been, what they invest in, how they price those assets. It’s a full, comprehensive analysis of everything you wanna know about those non-traded REITs. And we don’t do it for profit, believe it or not, we don’t make a lot of money doing it, but we do it because we want the information. We wanna be able to talk to people about the space intelligently, and the only way we can do that is have several research analysts focus on every filing that they do.
These programs have gotten large, you know, one of them is over $40 billion in equity raise, so they’re getting big, and we think there will be more people following them. We’d like to be the leader looking at that. They’re not easy to analyze. You’ve got to have a real estate background, and you’ve got to have a financial background and a securities background, maybe an accounting degree wouldn’t hurt either, but we write them in such a way that we think it’s simple to understand so it’s helpful for people wanting to get into this product line. And we’ll be adding other products to this research effort, BDCs and other products, because we think the market needs the info. And we’re not doing it to elbow anybody out of the room. We’re doing it to encourage others to write research about it, because I think the more people that write research about it, the better this product will be understood by more people. So we encourage and we help anybody who wants the right research, we help them get going. So, we’re encouraging everybody out there.
Jimmy: Yeah, that’s tremendous. It isn’t easy, as you mentioned, but you guys are doing a tremendous work and doing a service to the industry. You guys really have become a thought leader over the last several decades because of the work that you do. That’s how we came across you and how we are familiar with you, because of what you do as a publisher and a data reporter. And I know we’re gonna ask you about those research reports, those data reports a little bit later in the episode. But first, I wanted to focus on you brought up non-traded REITs a few times in your introduction there, kind of see as you do, I’m sure as well, Kevin, the alts industry, you used the term with us before we hit the record button, morphing from non-traded REITs to NAV REITs. What’s the impetus for that transition? And what’s resulting from it?
Kevin: Yeah, I think what’s happened here in the past, we had the broad category of non-traded REITs, which are basically finite light vehicles that raised capital, invested it, and then liquidated in some fashion by listing or merging or selling outright, over a period of 5, 7, 10 years, right? That was the basic product line, and they were fine. But there wasn’t enough transparency in those vehicles. So what’s happened is, we’ve had…over the last four or five years, we had this new product come out, which is called the NAV REIT, a Net Asset Value REIT. And what does that mean? It means every month, they’re striking a NAV, right? They’re telling you what the value of that security is. They’re valuing the real estate, they’re valuing the balance sheet, they’re recording, they’re accruing all their expenses and they’re saying, “Here’s what this thing’s worth today,” right? And you can buy at that price or sell at that price today. And that’s the basics of the NAV REIT.
Additionally, what they brought to the table, which the older REITs didn’t have, was to bring liquidity to the table. They commit to redeem up to 20% of the outstanding per annum. So, 20% of the people want out, they can get out at NAV, right? So they’re not subject to the vagaries of the stock market, they get out at net asset value. So, the fact that you have that liquidity feature, and that transparency on NAV is very compelling, on top of a pretty strong distribution, which is about 5% of the NAV, about 5% of NAV is distribution rate. You couple all of that with the performance that these products have provided over the last couple of years, and now you’ve got something to talk about. Those products have generally returned 7%, 8% over the last several years, but in the last 12 months, they’ve been up 20% to 25% as a result of a recovery of real estate markets. So they’ve done really well. So you’ve got…what have you got? You’ve got transparency on value, you’ve got liquidity, and you’ve got performance, that makes a good investment product. And that…we didn’t have all those things with the prior generation of REITs.
In addition to all of that, we got some great sponsorship, right? We got the likes of Blackstone, Ares, Griffin, Starwood, Bluerock, just a whole…Hines, you know, a whole host of players coming into this space, or that are in this space, and those are good names to line up with. They will produce some good returns, and we think because they’re good quality players.
Jimmy: Absolutely. Kevin, one theme that comes to mind, both within the NAV REITs, you know, and some of those product segments, as well as just the greater alternative investment landscape, and what your company does, is transparency, right? So that these products and these wrappers are just inherently more transparent. And with organizations like yours, producing research reports, and like what the IPA is doing, is just bringing more transparency and information to the space and bringing that information, you know, to RIAs, to family offices, high-net-worth investors, and so on. I think that is so important for the overall growth of the industry, as well as just these individual product segments.
But I wanted to dig a little deeper into your research reports. You did a very good job of describing all the different research that you all produce, but could you tell us and our listeners a little bit more about how you actually produce those reports? You know, how do you get the data as well as what kind of investors could utilize these reports? Is it mainly High Net Worth individual investors? Is it family offices and RIAs? Are these institutional investors who are subscribing? Could you tell us a little bit more about that?
Kevin: Yeah. So first on doing the research reports, it’s a challenge. There’s a lot of information you’ve got to gather, all this from public filings, nothing other than public filings, and general survey data available to the industry, to anybody, right? So we go through, read all their filings, and we look at all their data. And then we look at industry data to talk about pricing of real estate assets. And what we do is we walk through, in a very detailed fashion, on each deal, we walk through their fundraising, we walk through how they’ve raised money over the last couple of years. We look at their redemptions, how they’ve redeemed, whether they’ve met their redemptions, we look at how they’ve deployed the capital into what asset classes and how they price those investments in their NAV derivation, and we compare that to survey data.
So we look at the pricing they use for discount rates and cap rates and the price of each asset class compared to the survey data, and we make a comment about that, whether we think that’s reasonable or not. And then we look at their balance sheet, we look at their NAV derivation, we look at their distribution and how it’s covered by earnings, what the payout ratio is, that’s a term of ours we use, what the payout ratio is. So, we’re looking at all those features. And at the end of the day, inside of that report, we do a five-year projection of what we think that same store portfolio will do over five years, we triangulate based upon the data reported by them, and we come up with a five-year projection. Then it’s kind of interesting. It shows what we think it will do. And we state it all very clearly, and simply. I tell people that you don’t have to read past the front left column of the research report, it kind of tells you everything you wanna know. If you want the detail, you can dig deeper, but that’s how it fundamentally is useful. It lays it all out for you. And you can compare these NAV REITs to each other, right, and to the traded REIT world. So you’re able to do that with our research report pretty simply.
I tell everybody, the first research report will take you 20 minutes to read, the next one will take you 5 minutes, because they’re all kind of laid out the same. And it’s pretty straightforward. I think it’s useful to anybody who’s considering deploying capital into the space, whether you’re recommending it as a financial advisor, or whether you’re actually committing your own personal capital, or your family’s capital to the space, it’s worth reading. It’s put together… We’re not biased. Nobody sponsors us. We don’t have any connection with these sponsors, in terms of them paying us to write these research reports. Sometimes we get engaged in assignments, but we always disclose that. But at the end of the day, these are independent research reports that we think are useful. And I had my guys write it, so that it was useful to me, I’m the CEO of the company so I wanted to be able to understand everything going on in that deal in 15 or 20 minutes, and it accomplishes that objective, and it’s pretty thorough and authoritative. And we like it. We’ve gotten a lot of compliments about it. Hard to do, but easy to read. And we’re encouraging anybody who wants to pick up a pen, that’s an analyst, to write one, because we think the more people that write about it, the better the space will be received.
Jimmy: I love what you mentioned, that your team writes the research report that you yourself wanna read as an investor. I think in software development, they call that eating your own dog food.
Jimmy: I think that’s just a great way to develop product, is create the thing that you yourself wanna use. You know, I’ve sort of followed the research reports almost secondhand, just seeing news headlines. And obviously, this has just been a banner year, across the alternative investment landscape. I mean, we’ve seen record inflows into non-traded REITs, into DSTs. I know even opportunity funds have seen a lot of inflows. It just seems like almost every single segment is setting a record in 2021. So, do you see this trend continuing into 2022? Do you think that 2022 is likely to be that sort of banner year? And then within that, are there different types of products that you think have the most traction relative to the others?
Kevin: Yeah, I think we’re in the early innings here. Someone asked me recently what inning I thought we’re in, I said, I thought we’re in the second inning of a nine-inning game. So I think we’re early. This is new wave stuff. And we’ve got some great sponsorship. Like I said, you know, you’ve got Blackstone, Ares, Nuveen, Starwood, you know, there’s some…KKR, some great names out there. Now you’ve got Apollo coming into the space in a bigger way. So, all the big asset managers that have had institutional followings are now coming to the retail side recognizing that this capital is sticky. They’re investing in a perpetual program, they’ve got the option for liquidity, they’re looking long-term, they should stick with the investment thesis.
The other thing I think that’s happened here, quite smartly, is their high conviction assets have been hot, top performers, right? In the old days, we did non-trader REITs, there’s a lot of office assets, a lot of retail assets. In this new generation, the focus has been…the high conviction stuff has been multifamily, self-storage, logistics/industrial, those asset classes, which have really, really done quite well in the past year or two, the last couple of years. So that’s what we’re really paying these asset managers for, right, these big names. We don’t want them to be stuck on an asset class that’s the only thing they know. We want them to look at the world of real estate and pick those things that make sense, that look like they got the best growth prospects. We saw some of them go by, do big net leases on casinos in Vegas during the pandemic, and we said, “My God, does that make sense?” And of course they caught the trend…they caught the dip and wrote it up. So at the end of the day, that’s what we’re paying for. That’s a game-changer, I think. You’ve got strategic thinkers looking at these portfolios, these portfolios are getting big, you know, $5 billion, $10 billion…you know, one of them is over $50 billion, and they’re big portfolios. So it’s great that we bring that strategic thinking and muscle into the space to help retail investors get that exposure. You need that kind of talent that was previously only available to institutional investors, right, the big pension funds. That wasn’t available to the retail investor. Now being available to the retail investor, we think that’s a game-changer and that should change the fundraising paradigm here going forward.
Jimmy: I totally agree that is a game-changer, just kind of water falling down from family offices and Ultra High Net Worth to very High Net Worth, and now a lot of these products are accessible to any accredited investor. And then especially with the information and transparency being available, you know, through research reports, and through other organizations and media sources, frankly, it’s just a better value proposition, I think, for your “everyday accredited investor” versus 20 or 30 years ago. But Kevin, you’ve given us a lot to digest and a lot of information, but I wanna put you on the spot now. Do you have any predictions for 2022 within the alts landscape?
Kevin: Yeah. I’m predicting broadly that we’re gonna see another 20% uptick from where we are right now. So, where I’ve said that total alt…alts, meaning public programs, non-traded REITs, BDCs, preferred stocks, interval funds, and other…and private placements, meaning DSPs, OZ deals and other private placements, I predict those this year would be $75 billion, and I think it’ll be up 20% next year, so being closer to $90 billion, and I think that’s pretty exciting. Back in 2019, that was less than $30 billion, so that’s a big move. And I think the market will handle it. And I think it’s exciting, and great. It’s a good opportunity. And I think we’re bringing and seeing just big names come into this space that bring a lot of analytical firepower to the underwriting of real estate, which is something you really wanna see. So, it’s all good.
Jimmy: It is all good, Kevin, for sure. There’s a lot of momentum in the alternative investment industry. We’re happy to be covering it from altsdb.com and from this podcast, The Alternative Investment Podcast. Thanks for joining us on the show today. Kevin, it’s been a pleasure speaking with you and getting your insights and learning more about your company. But before we go, where can our listeners go to learn more about you and Robert A. Stanger and Company?
Kevin: We’ve a website, rastanger.com, rastanger.com. You can go on there. And if they really wanna know something, tell ’em to call me. I’ll be glad to spend some time on the phone with them or any of you guys. We spend a lot of time doing that. And it’s fun. You learn something. People tell you stuff, right? And we’ll send them our free research report and they can tell me what they don’t like about it, tell me what they think we should do, and I’ll take that under serious consideration, because we wanna make a better product. That’s what we wanna do, make it more useful to everybody. So, tell ’em to call me.
Jimmy: You know, that’s great. Yeah, I love to talk with investors and other folks on the phone all the time, and great way to learn about what people want and build relationships and build trust. Well, also just before we go though, I do wanna remind our listeners that we will produce show notes for today’s episode as we do for all of our episodes on the AltsDb website. You can find those show notes at altsdb.com/podcast. And there you’ll find links to all of the resources that we discussed today with our guest, Kevin Gannon. Kevin, again, thanks for joining us today. I appreciate it.
Kevin: Thank you, fellas.