If you are an owner of KBS REIT 1, you may have or will likely receive a letter from CMG Partners. The purpose of this letter is to encourage investors to sell shares at a heavily discounted price in exchange for liquidity. While I concur that the commercial real estate market has had it’s difficulties and KBS has experienced some challenges associated with market conditions it is my recommendation to hold the shares and ignore the offer.
CMG Partners is in a class of funds whom I have not so affectionately termed “Vulture Funds.” It is a moniker I’ve given as a result of their propensity to prey on investors at inopportune times for excessive profits. In the case of the current KBS offer they make several statements as a pseudo justification for the ridiculous offer of $1 per share or, an 86% discount to the recently completed December 2010 value. I’ll respond to their statements here:
“KBS REIT is not listed on any exchange…”
Agreed, it is by design a non-traded REIT and is in fact one of the reasons I used it in portfolios. Investor behavior is a key variable in determining investment returns and many retail investors buy or sell as a reflection of their emotions about the market or a given investment. This has historically been a poor indicator of future performance and a chief obstacle to achieving the buy low, sell high goal of investing. Reasons for this dynamic are quite simple: buying low is generally done during a time of turmoil and therefore doesn’t “feel” good. Conversely, selling high typically comes at the opposite end of the emotional spectrum when doing so may give the appearance of missing out. Like many things in life, doing the right thing doesn’t always feel good in the moment.
“…our price is not reduced by any commission or fees…”
No reduction was necessary, the $1 per share offer leaves plenty of opportunity to profit after transaction expenses. Knights in shining armor they are not.
“Even though KBS was supposed to have listed their shares in 2012…”
KBS like many firms did not anticipate the near collapse of the financial markets in 2008 nor the subsequent recession we’ve endured. To expect any company to dogmatically hold to guidance made prior to such historic events is either foolish, uninformed, or both. Naturally, an initial public offering (IPO) or other liquidity event, if all had gone as planned, would be welcome. However, in light of present circumstances attempting to do so now would be ill advised and probably not accomplish what patience and little time may afford us.
“…it was the only non-traded REIT to purport to have an increase in share value from 2009 to 2010…” Two points here: Firstly, they didn’t purport anything, the share value assessment isn’t an arbitrary figure and report would have been a far more accurate term. Second, the increase is likely a result of the “house cleaning” they did in 2009. KBS management indicated that any questionable asset or investment would be written down for the initial share value assessment in an effort to provide a conservative valuation and avoid an annual repeat of charge offs. At the time they also indicated that some of these accounting maneuvers would likely be reversed resulting in subsequent improvements in share value. Combine this with leases made to companies such as Coca Cola and G & C foods as well as other operational improvements and a share value increase can easily be justified.
Lastly, they made a (hopefully) critical error in their offering price. By offering only one dollar they created a rational reason for investors not to sell. In making the risk to return ratio severely asymmetric (an 86% loss if sold) investors are likely to assume (and correctly so) that there isn’t much more to lose, but a whole lot to potentially gain.
Please contact me with any suggestions regarding this matter, otherwise shred the letter from CMG Partners and get ready for spring.
When it rains it pours…or so I thought when my inbox alerted me to the presence of the latest Wells REIT 2 message. It seems like anytime a sponsor attempts to communicate with investors directly it usually means I have to translate their “communication” into something people not employed in the financial services industry can comprehend. This time however, I was pleasantly surprised.
The letter you will be receiving is well written, to the point, and should be easily understandable. And, as if a well written letter wasn’t enough, they also recorded a short video with Chairman Leo Wells himself explaining what they did and why. The buttons below will take you to a copy of the letter (in case you haven’t received it yet).
As always, if you have questions please contact me and we can discuss them.
Given our current economic predicament it’s easy to forget how fortunate we are to live in America; a place where what we frequently consider to be challenges are down right trivial if compared with those in many countries. It can be difficult to imagine an environment where hard work at best yields a meager existence and something as fundamental as safe drinking water is difficult or impossible to obtain. Unfortunately this is the sad reality for much of the world.
Shortly after founding Joseph Graves Capital Management I began looking for practical ways to impact this inequity and recently discovered a simple way to support those working to improve their lot through entrepreneurship by providing microfinance loans. Microfinance was pioneered by Nobel Prize winner Muhammad Yunus and has proved to be an effective means of combating extreme poverty while increasing the living standards of entire communities.
I’ve created a group here: WorldVision Group Managed by World Vision, a not for profit humanitarian organization in Federal Way, WA making it easy to partner with me in this immensely important and personally satisfying endeavor (they even allow you to login with Facebook should you desire).
For less than the cost of a meal at Burgerville you can improve the lives of people in desperate need and in addition to being a tax deductible donation it’s also a great opportunity to do well by doing good.
Please join me in making a real difference in someone’s life; we have 30 days to exclusively fund our first loan to Justine Nibakure a woman from Rwanda to purchase rice, beans, and sugar for resale in her shop.
Financial pundits love citing history and the myriad of anecdotal quotes that extol one strategy or another; comparing valuations and prices to bygone times, confident (or perhaps just hopeful) of a reversion to the mean. But what if the history we are repeating is part of a larger cycle than the last 10, 20, or even 50 years? What if the historical cycle we are allegedly repeating is more significant than just another economic recession? Conversely, what if we are actually in uncharted territory? What if globalization and the information age have plotted a new course, one for which we have no map?
As a country we face significant challenges; ones not simply resolved with collective optimism. Like spoiled children we’ve ignored wisdom and squandered our inheritance; an inheritance not of a monetary endowment but a socio/political/ economic system that allowed hard work, ingenuity, and intelligence to be justly compensated. My chief question is whether we’ll continue down this destructive path blissfully ignorant or wise up, make the necessary adjustments, and hopefully return to the ideals that previously allowed us to prosper.
From an investment perspective multiple possible outcomes is just information; it’s possible to profit in any environment if one is willing to question assumptions, face the facts, and act accordingly. Success depends on preparation for a variety of outcomes, an ability to adapt to changing conditions, and a recognition of the unknown. I plan to be prepared for whatever may come, protect what we have, and take advantage of opportunities as they are uncovered.
Have fun,
Joseph Graves
“In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.”
I operate as the Chief Investment Officer for my clients. This means I collaborate with them and other professional advisers on retirement and investment related issues as well as life issues as necessary.
Every new client relationship starts the same way I’d begin a friendship; through a conversation where we are attempting to discover if there are a sufficient number of shared values to merit working together.
I work best with people who are smart, comfortable with technology, and regard money as a tool; to provide for them or their loved ones.
Curmudgeons, lemmings, and the mentally apathetic.
Regularly as needed ranging from multiple times per month to every quarter, but no less than annually depending on the clients wishes. I prefer email, telephone, and web conference but will also meet face to face when necessary.
40-60% of my time is allocated to working with clients and tasks directly related to maintaining our relationship.
If I’m awake, I’m available. I regularly speak with clients and their advisers outside of traditional working hours.
I intentionally limit the number of financial planning clients I work with to stay below 75. This allows me to maintain my desired level of service without having to add a bunch of staff and overhead.
Less than 10%. See question 8 for explanation. Marketing does not add value to my existing clients.
The simplest explanation is I attempt to buy investments at less than they are worth. What I buy and when I buy it is driven by my global macro economic view and fundamental analysis. I believe it is more important to avoid significant losses than to chase gains.
30-50% of my time is allocated to investment and economic research.
I love to learn so furthering my education is something I’d do even if it weren’t required for my profession. In addition to the mandated requirements of FINRA and my broker dealer, I subscribe to a bunch of magazines and newsletters, blogs, financial and economic websites, various podcasts, and read over 100 books a year on wide variety of financial and nonfinancial topics.
Typically I’m compensated quarterly with a fee based on the assets I directly manage, but also utilize a flat, hourly, or one time consulting fee when appropriate. All compensation is clearly disclosed, documented, and discussed in advance.
Many financial planners are likable people, charismatic, and hopefully well intentioned. Some are even good at their jobs, but unfortunately the typical stock broker, financial planner, and insurance agents are usually just highly paid financial product pushers.
It’s really hard to tell the difference.
I’ve created 13 questions to ask your current or prospective representative. A decent adviser should have no problems answering them in a way that will help you better understand their motivation, goals, and priorities.
What specifically do you do for your clients and how do you do it. Give examples.
How do you select the clients you are willing work with? Why?
What type(s) of people do you work best with?
Who does not fit your service model?
How often, by what means, and for what reasons do you contact your clients?
How much time per week do you devote to meeting or talking with existing clients?
What are your hours of service? Are you available to talk/ meet on evenings and weekends? How often?
How many clients do you currently have and how many do you plan on accepting?
How much time per week do you spend prospecting for new clients?
What is your investment philosophy? Why?
How much time per week do you devote to investment research?
What are your plans for continuing education?
How much will you earn from our relationship this year and in the future? How are you compensated, and when will you be paid?
Ideally several other advisers would be interviewed as well to provide a basis for comparison (Here are my 13 Answers). If after contemplating all of the responses it reinforces the level of satisfaction with your current adviser thank them for a job well done. However if these questions exposed some uncertainty in your existing relationship, they can also be used as a starting point for developing a new one.
Sharing this information is my way of exposing ridiculous policies of and creating change in the financial services industry.
Learn more about who I am, what I do, and who I do it for.
Most 401k plans are designed with a companies needs in mind. Frequently they contain inferior and insufficient investment options to truly diversify and protect your investments.
What can you do?
Many plans allow for what’s called an “In Service Withdrawal” which enables you to take control of your investments and get them out of the company plan while still employed and without adverse tax consequences.
How does it work?
First, the employer company must offer an In Service Withdraw and you (the participant) must meet their qualifying criteria. Next, fill out the required paperwork carefully; check the wrong box and taxes might be due. Finally, direct the funds to an IRA under your supervision or an adviser you justifiably trust (here are 13 questions to help make that determination).
How do you find out if a company allows an In Service Withdrawal?
1. Contact human resources and ask them, OR
2. Request a Summary Plan Description (SPD) from your 401k service provider, wait for them to send it, and scour the document looking for the section(s) on withdrawals, OR
3. Have a professional help navigate through the bureaucracy.
Sharing this information is my way of exposing the ridiculous policies of and creating change in the financial services industry.
Learn more about who I am, what I do, and who I do it for.
