The Dog That Didn’t Bark at SmartStop
October 19, 2016 | by James Sprow | Blue Vault
Sherlock Holmes, in one of his more famous cases, called attention to the fact that a watchdog hadn’t barked in the night, indicating the “intruder” was known to the dog. Sometimes it is something that is not there that is very important. In the case of the Strategic Storage Trust IV, Inc. offering, an amended S-11 filed on October 7, 2016, has some important fees missing that were present in the first filing back in July. SmartStop Asset Management, LLC, may not be talking about it yet, but it’s the type of news that we’ve seen at several other nontraded REIT programs recently¹,².
The first fee that has gone missing is the Acquisition Fee that was in the original filing at 2.00% of the contract purchase price of real estate investments the REIT acquires. This is now absent from the latest prospectus, indicating that more of the REIT’s offering proceeds will be available for “assets in the ground” and less will be paid to the program sponsor.
Gone also are the Disposition Fees that were in the first prospectus at 1.00% of the contract sales price or 50.00% of the competitive commission rate. Again, more proceeds would be available to the REIT and ultimately to shareholders as these fees disappear.
Interestingly, the category of “Other Organization and Offering Expenses (Advisor)” in the original filing at an estimated 1.50% of gross offering proceeds are estimated at 1.15% of gross offering proceeds in the revised S-11 filing, again making more funds available from the net proceeds, depending on actual results.
The most important fee when it comes to impacting potential shareholder returns is the Asset Management Fee which is accrued monthly and based upon aggregate asset values. The revised prospectus shows an increase from 0.75% annualized to 1.00% annualized for this fee rate, offsetting to some extent the benefits of dropped acquisition and disposition fees. Other recently announced offerings have Asset Management fees as high as 1.25%.
The net effect of these fee changes is to be determined as the Strategic Storage Trust IV offering proceeds and becomes effective. At this point all we can say is one more nontraded REIT program has made adjustments to its fee structure hoping to make its common shares more attractive to potential investors.
Blue Vault Nontraded REIT Fees Study
The first Blue Vault Nontraded REIT Fees Study provides in-depth analysis of all fees associated with nontraded REIT investments currently offered, including definitions of the fees, how the fees impact shareholder returns, and a complete data set with each of the REIT’s share class fees as well as ranges, averages, and medians for the industry.
This study is the first of its kind to be a comprehensive view of the fee structures of nontraded REIT offerings, and the first to analyze the impacts of those fees on eventual shareholder returns. As the industry evolves with new share classes and class-specific expense allocations, such as the shareholder servicing fees assessed to Class T shares, it is more important than ever to understand how fees are calculated, assessed and will impact shareholders. The study provides both a glossary of terms as well as extensive tables and appendices with specific examples from the prospectuses of nontraded REITs. It also examines historical trends from closed offerings to identify how current offerings compare to those of the past.
The Nontraded REIT Fees Study will be published next week, the week of October 24th. Watch for more announcements over the next week. To learn how you can get Subscriber Only access to this report, email or call Dawn McDaniel at 678-456-4787.
BlueVault saves a lot of time and effort in obtaining good numbers for analysis and provides good insights to compare against my own.