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Category ArchiveNew York Stock Exchange

Would-Be Single-Asset REIT Delays Initial Offering

Aspen REIT, an investment vehicle that had aimed to sell shares in the St. Regis resort in Aspen, Colo. as America’s first publicly traded single-asset real estate investment trust has postponed its opening salvo, according to a statement from the company.

Its IPO on the New York Stock Exchange had been scheduled for some time in February.

“We decided to pull the deal in order to re-tool our crowd-funding distribution channel in order to create a seamless conversion of the robust traffic to our site,” the REIT’s founder, Stephane De Baets, said in a statement. “We continue to believe the St. Regis Aspen Resort is an extremely attractive trophy asset and there is a future for publicly traded single-asset REITs.”

De Baets planned to sell 1.675 million shares at $20 each—49 percent of the equity in the resort. In all, the sale would have valued the luxury hotel at $187.8 million.

A representative for the REIT did not immediately respond to a request for details about the organization’s plans or the expected timing of the postponed offering.

Source: commercial

Aspen’s St. Regis Will Become US’s First Public Single-Asset REIT

Stephane De Baets’ Elevated Returns, a New York-based asset management outfit, may be riding an express chairlift into the history books.

The firm, which acquired the St. Regis resort in Aspen, Colo., in 2010, won approval from the Securities and Exchange Commission late last month to spin off the property under the ownership of a newly formed real estate investment trust (REIT) called Aspen REIT. When it does—and after its New York Stock Exchange initial public offering later this month that aims to hawk 1.675 million shares at $20 each—the trust will become what De Baets said will be the first single-asset REIT to trade on an American exchange.

Elevated Returns plans to retain 51 percent of the shares, bringing equity investment in the property to $68.4 million. Those stakes combine in the capital stack with a $119.4 million mortgage to bring the St. Regis’ total valuation to $187.8 million.

The structure pioneers a novel configuration of real estate ownership, allowing anyone with a brokerage account to buy a piece of an individual commercial asset for no more than the price of a dinner entrée.

“It’s a democratization of the investment model,” De Baets said. “We’re enabling the man on the street to, point to point, invest into a particular asset and to enjoy 100 percent of the economic interest.”

The concept is not unheard of. In the mid-1980s, in an arcane, convoluted transaction that allowed the Rockefeller clan to skirt a tax liability for liquefying its real estate holdings, the family created a single-asset REIT assigned to collect interest on mortgages on Rockefeller Center in Midtown Manhattan.

And in 2013, an upstart called ETRE Financial was poised to zip several different commercial properties, in Boston, Washington, D.C., and Philadelphia, into discrete single-asset trusts available to shareholders to trade on the Nasdaq exchange.

Both of those endeavors careened toward the gutter. By the end of 1995, Rockefeller Center Properties was deeply distressed, suffocating under the layers of debt it had taken on to protect shareholders and buying back bonds that were set to convert into equity in the future.

And ETRE Financial fizzled before launch, postponing a series of IPOs in the wake of what analysts speculated was lackluster investor interest.

Michael Rotchford, who co-leads the capital markets group at Savills Studley, mused that concern in particular would be an obstacle for any single-asset trust to confront.

“Single-asset REITs for certain assets are a great idea, but I think that liquidity is going to be of great concern to individual investors,” Rotchford said.

When asked about concerns over the vibrancy of the proposed REIT’s secondary market, De Baets was upbeat, explaining that Aspen will employ a market-maker, Citadel Securities, to promote liquid trading in the stock.

“The market-maker is very incentivized to keep the market liquid,” he said. “If the first [single-asset REIT] is successful, there’ll be 20 of these.”

The hotel, at 315 East Dean Street in the ritzy Rocky Mountains town, is nothing to shake a stick at. Two blocks from the lift lines for the Aspen Mountain ski resort (also known by its former moniker, Ajax), the St. Regis boasts five restaurants—including one that serves dishes from chefs Eric Ripert and Mario Batali—a full-service spa and even butlers available to meet guests on the tarmac at Aspen-Pitkin County Airport to carry their luggage.

De Baets may also have an ace up his sleeve in the form of deep relationships with Asian investors. In addition to his role at Elevated Returns, the Belgium native also serves as a managing director for OptAsia, a specialty investment bank with offices in Bangkok. In that capacity, De Baets lived in Thailand for 20 years and said he believes that an emerging investor class in China and throughout the eastern part of the continent is hungry for recognizable American properties in which to park their cash.

When considering mainstream U.S. REIT opportunities, “most of my investors in Asia say, ‘I don’t know, this REIT has 500 different assets,’ “ De Baets said, “ ‘It’s complicated for me to understand if it’s a good deal.’ “

With Aspen REIT, “you only have one set of numbers,” he added. “The underlying value of the asset is easy to understand.”

The pitch to foreign retail investors will be bolstered by the tax advantages that real estate investment trusts enjoy abroad.

“For foreign pension plans that are now recognized [by the U.S. government], they would be exempt from taxes on the dividends,” explained Kenneth Weissenberg, a partner at New York accounting firm EisnerAmper. “And a nonexempt holder can sell his stock in the REIT and not be subject to” the Foreign Investment in Real Property Tax Act, a law that charges income tax to foreigners who make money in American real estate.

Incentives for foreign REIT investors were further strengthened by 2015’s PATH Act, which lowered the rate of dividend withholding for foreign REIT investors to 21 percent from 30 percent.

But how well Aspen REIT will serve owners as an investment vehicle remains unknown. Trophy resort hotels have always been difficult to find investment comparisons for, analysts say, because their fortunes are so closely tied to local conditions. But single-asset REITs lack any precedent at all, leaving De Baets to play a guessing game for what the financing market will bear.

“We don’t know that the general public will be happy with the yield,” the asset manager said. “We’ve priced this offering with an entry yield that is so attractive that we know the asset will be in demand. Where will it settle once it’s trading? No one knows.”

Still, Elevated Returns thinks that the ski town’s prestige and the strength of the St. Regis brand will boost the REIT’s market with investors content to dampen their expectations for return.

“I would say that the difference between the sexy asset and the non-sexy asset would be the yield compression,” De Baets said.

The paperwork that Aspen REIT has filed with the SEC in advance of its initial offering of shares grants an intriguing glimpse into the finances of a luxury hotel adjacent to a destination ski area.

Occupancy is sharply seasonal. During the ski season—roughly from late December through the first few weeks of April—demand soars, and guests rent 80 to 95 percent of the St. Regis’ 179 rooms. The picture is similar over the summer, from June through August, when travelers mob the town for hiking and rafting, as well as a yearly two-month classical music festival.

Revenue follows a similarly lumpy pattern. In December 2016—the most recent ski season for which data are available—the average price for a night at the St. Regis peaked at $1,665. But in the October offseason two months earlier, rooms could be had for less than a quarter of that price.

Still, the St. Regis was able to charge consistently higher rates than its competitors throughout Colorado, its SEC filings show. In 2016, the hotel raked in just shy of $29 million in room revenues, or about 45 percent of the REIT’s planned IPO valuation.
On the whole, revenue from the hotel has grown 14 percent since 2015, supporting the REIT’s pledge to pay out a 5.8 percent annual dividend.

Given REITs’ surging popularity—May 2017 data from the National Association of Real Estate Investment Trusts showed that daily trading in the sector was up roughly 150 percent over the preceding decade—analysts say the time is ripe for new innovations in the vehicles.

“You have growing popularity of the real estate space as the primary alternative investment,” said David Blatt, the chief executive of New York-based CapStack partners. “Additionally, people are looking to diversity away from public equities and bonds to have noncorrelated assets. That, in turn, has really brought a lot of people off the sidelines.

“I think [the single-asset REIT concept] is sector agnostic, but I do think that you’re going to acclimate people far better utilizing something that has a brand,” Blatt said. “Coming to market saying you’ve got a fantastically well-located warehouse complex—I’m sorry, but I fell asleep after you said ‘warehouse.’ ”

On the other hand, with a market cap, at $68.4 million, only about a 10th as large as its self-identified competitors, Aspen REIT might appear to have an uphill battle winning investor attention amidst the clamor.

On that front, the hotel’s branding could be crucial to its success.

In exchange for using the St. Regis moniker and outsourcing its day-to-day operations to the brand, Elevated Returns pays Marriott, which owns St. Regis, an annual fee based on a percentage of the Aspen hotel’s operating revenue—$500,000 at a minimum.

The Bethesda, Md.-based lodging company did not respond to a request for comment.

“[St. Regis’] sales network is very strong and sophisticated,” De Baets said, citing the company’s “no-blackout, highly rewarding loyalty program. That’s something that has been very powerful for properties like ours.”

Source: commercial

Pot Industry to Sessions: Don’t Harsh Our Mellow

On Aug. 29, 2013, U.S. Deputy Attorney General James Cole issued a memorandum that basically instructed U.S. attorneys to keep their focus off the cannabis industry in states where the substance was legal, as long as companies complied with state law and followed guidelines such as keeping cannabis away from children.

As state after state has legalized the substance for medical and recreational use, the “Cole Memo,” as it’s known, was the safety net the industry relied on to move forward given wide disparities between state and federal laws.

Yesterday, U.S. Attorney General Jeff Sessions, a longtime opponent of cannabis legalization, rescinded the Cole Memo.

It’s impossible to say exactly what the effect will be on the cannabis industry, other than to create even more uncertainty and confusion.

But Jeremy Unruh, a former assistant state attorney in Illinois and currently the director of public and regulatory affairs for PharmaCann, which operates dispensaries and cultivation facilities in New York and Illinois, believes it will be difficult for Sessions to upend the industry.

“There’s probably no greater threat of federal law enforcement today than there was a week ago, with the Cole Memo still in effect,” Unruh told Commercial Observer. “Federal prosecutors will still have to undertake careful analysis of each potential matter before determining whether to engage in enforcement activity.”

Unruh explained that while the memo’s rescission gives U.S. attorneys more autonomy, federal enforcement resources are limited, and there are many factors to be considered before taking such action.

“Jeff Sessions may think there is a substantial federal interest in knocking back the marijuana industry, but then he has to determine whether that is enough to push [aside] terrorism, violent crime, cartel activity, money laundering, immigration and the other 10 topics he has on his plate,” Unruh said. “He is going to have to displace one of those in order to focus on the cannabis space.”

The most likely negative effect of the rescission is a decline in investment dollars coming into the industry. But Unruh believes this effect will most likely be strongest in the short-term.

“People who were a couple hours away from scratching out a check won’t do it,” he said. “But as we see the real impact of this, meaning what are U.S. attorneys actually going to do, we’ll need to see if there is exacerbated or enhanced enforcement activity. Then I think you’ll see the trickle of investment normalize, or go back to the way it was, over a fairly short period of time, the next several weeks to a couple of months.”

For real estate, Unruh thinks the rescission could hold a hidden benefit, as investors cautiously retreating from companies that deal directly with the cannabis plant seek ancillary ways to maintain an investment position—such as in real estate dedicated for that purpose.

“[Cannabis investors] may now view a real estate investment like buying stock on the New York Stock Exchange, or becoming a landlord,” Unruh said. “They may find that to be far more palatable in this Cole Memo-less environment.”

Unruh said that PharmaCann will “not even remotely” change the way it does business, given that states that have legalized recreational use face the biggest threat. For medical cannabis, the Rohrabacher–Blumenauer amendment still prohibits the Justice Department from using funds to interfere with medical facilities that adhere to state laws.

He believes Sessions’ action may even create a backlash, strengthening cannabis supporters’ resolve in pushing for across-the-board legalization.

“What [the Cole Memo] did is telegraph to the industry, these are the things you need to be focused on,” Unruh said. “Pulling that away creates unclarity, and exacerbates state [and] federal tension. As a result, I think you’re going to have more constituents being vocal to their congressional delegations, and this therefore bubbling up on the congressional priority list. There are 30 states out there with medical [cannabis] programs. Thirty states worth of representatives and senators ought to carry both houses [of Congress], you’d think.”

Source: commercial

Jumping From Coaching to Hypnosis to Heating and Ventilation With Daniel Donnelly

The Executives’ Association of New York City was meeting to select the winners of its annual deals of distinction—given to business leaders and dealmakers from Greater New York who make a significant impact in some way—when the discussion turned to the gala itself. Members were batting around hoped-for attendance figures for the party, to be held at Capitale, the grand event space on the Bowery.

It was then that a cheerful, highly energized Daniel Donnelly, a committee co-chair and the chief executive officer of Donnelly Mechanical, arrived.

Donnelly listened for a bit and then said, “ ‘This is bullshit. We’re not going to have 200 to 300 people in the room; we’re going to have 1,000. Do this, this and this.’ ” And then he left.

That was how it went down, according to Donnelly’s fellow co-chair, Larry Weiss, the president and CEO of office technology and IT solutions company Atlantic, Tomorrow’s Office, who laughed as he retold the anecdote about his friend of 20 years.

The panel followed Donnelly’s plan and 500 people showed up for the party on May 20, 2015—not quite 1,000 but a lot more than a piddling 200 to 300 people.

That confidence, focus and vision have in part led people to call on Donnelly for help with a myriad of issues, from personal to professional.

By day, Donnelly oversees the Queens Village, Queens-based Donnelly Mechanical, which provides heating, ventilation and air conditioning (HVAC) service, maintenance and construction, as well as energy solutions. (The company has 5,000 clients in New York City, Long Island and parts of Westchester and northern New Jersey.)

But the rest of the time, there’s a mentor, life coach and hypnotist working inside Donnelly.

Jean Lahage Cohen, the executive director of Mentor New York, which supports 600 mentor programs, said Donnelly has “modeled” how to take initiative when it comes to networking. He is one of the organization’s 24 board members. As result, Cohen said, she has been “more deliberate about following up” and “taking more risks” to meet new people. (Donnelly is also a mentor to a ninth-grader through Student Sponsor Partners.)

Diana Sweeney, the chief operating officer of EnergyWatch, sought Donnelly’s counsel last week regarding the growth of her energy data management company.

They had a two-hour coaching session.

“He asked for a brief understanding of the issue and asked a ton of questions and drew out of me the answers,” Sweeney said. “In a very short time, he was able to zero in on the most important aspects.” The conclusion: She needs to grow her sales team and needs to connect with “the right people.”

Both Sweeney and Donnelly were members of Vistage International (Sweeney still is), an executive coaching organization for CEOs and executives, but they met for the first time last week.

Donnelly isn’t just an armchair coach. He went through a certified coaching training program at Accomplishment Coaching last year. And the year prior, he was trained as a clinical hypnotist. His specialties are meditation and manifestation.

The coaching skills come in handy, Donnelly said, as a member of the Mentor New York board and when working on fundraising initiatives. He uses the hypnosis primarily on himself to affect change. 

He does not hypnotize clients, he said, and does not charge for hypnosis or life coaching sessions. (During a recent interview with Donnelly, this reporter sought to be hypnotized to be cured of an overwhelming Diet Coke habit, but due to time constraints, Donnelly was only able to walk her through the steps of how it would be done. It heavily involves visualization and breathing.)

Donnelly’s day job, however, is pretty significant all on its own. He works with some of the city’s biggest landlords from Rudin Management to Tishman Speyer to Brookfield Property Partners to Durst Organization. He has been tasked with working on numerous major projects, including Carnegie Hall and the New York Stock Exchange.

Ed Bohlke, Donnelly’s executive and life coach, said over the last year and a half of working together, Donnelly, keeps growing and has “create[d] more and more extraordinary results in his work and personal life.”

That has been borne out in his client’s company’s bottom line, the coach said.

This year, Donnelly Mechanical’s revenue will reach $125 million, Donnelly said. Last year, it was $105 million, and the year before that it was $110 million.

The company has a great retention rate and was named by Crain’s New York Business in 2010 as one of the “best places to work.” Many employees have been at the company for over 15 years.

Michael Klingher, the chief operating officer at Cauldwell Wingate, which provides preconstruction, construction management and general contracting services, became friends with Donnelly about 11 years ago. They converted the old Central Savings Bank building at 2100 Broadway at West 73rd Street from commercial to residential.

“I was the project manager, and Dan was overseeing the mechanical portion of it,” Klingher said. “That’s where we met and became friends as he guided and helped me through that project.”

20170610 dandonnelly 0821 Jumping From Coaching to Hypnosis to Heating and Ventilation With Daniel Donnelly
Daniel Donnelly of Donnelly Mechanical is more than just an HVAC guy. He is trained as a clinical hypnotist and life coach. Photo: Sasha Maslov/ for Commercial Observer

Klingher described it as a “very difficult project” with “a lot of redesign.” This cemented their bond.

Ironically, Donnelly said not to call him if you need your air-conditioner fixed. He’s an air-conditioning engineer, after all, and, pun intended, just “a cool guy.”

He got into the air-conditioning business because of an appreciation borne out of scarcity.

Growing up in Whitestone, Queens, the now-60-year-old Donnelly’s family was “dirt poor” with no air-conditioning until he got into high school. At that time, his family installed a window unit in one of the bedrooms. In the summers, it became a race for the kids to see who could get to the bedroom first.

“I like making people cool in the summer, and I love making people warm in the winter,” Donnelly said. “I just love air-conditioning.”

Donnelly’s first job was as a newspaper delivery boy. As a kid, he also stocked frozen food at ShopRite, flipped burgers at McDonald’s and restocked milk at a dairy barn. He told Michael Stoler during an interview on Building New York: NY Life Stories, “Little did I know sitting in a freezer for eight hours a day would define my job as an engineer.”

Donnelly joined the U.S. Army Reserve and became a certified welder. He landed a job at a company in Long Island City, Queens that made specialty piping products because he loved that he could create welding products. He attended Queensborough Community College at night for design and mechanical engineering and eventually got his bachelor’s degree from City College of New York.

Donnelly learned the mechanical engineer business while working at A.D. Winston Corp., which installs, services and maintains industrial air-conditioning, heating and ventilation systems throughout the tri-state area. When the owner didn’t make him a partner, Donnelly decided to set out on his own and create a HVAC service business.

Founded in 1989, Donnelly Mechanical has grown to 165 employees, 90 of whom are technicians.

Donnelly’s five partners were neighbors, or in some way connected to him through friends.

Caterina Asaro, a vice president of construction and a partner at Donnelly Mechanical, started working at the company as an adolescent, when she rolled change. She continued there through high school and college, at which point Asaro thought about changing the direction of her career.

It was Donnelly that convinced her to stay the course.

“He was like, ‘no, you’re made for this,’ ” Asaro said. “ ‘You were born to do this.’ ”

Donnelly looks out for his partners, who each have a 15 percent or smaller stake in the company.

Last month, he hired Bohlke to coach each of the partners.

“Dan’s just into these things and helping people be the best you can be,” Asaro said.

When it comes to power efficiency in buildings, Donnelly said it’s his “favorite subject.”

He is happy about Mayor Bill de Blasio’s 2014 commitment to reduce the city’s greenhouse gas emissions by 80 percent over 2005 levels by 2050 because “it focuses on energy efficiency and sustainability through carbon reduction strategies.”

According to a press release from the mayor’s office at the time, “Nearly three quarters of New York City’s greenhouse gas emissions come from energy used to heat, cool and power buildings.”

While Donnelly said the air-conditioning business is 10 years behind other tech industries, he’s bracing himself for the future.

He has acquired a legionella testing company, NYC Cooling Tower Inspections & Services, and is an investor in EliteCAD Designs, which provides 3-D modeling for fabrication, coordination, logistics and scanning of commercial mechanical systems. Donnelly is also an investor in LogCheck, a mobile app which helps system administrators stay on top of routine maintenance tasks, inspections and meter readings. (Among his more unorthodox investments, Donnelly and friends, including Weiss, have put money in a company called Tikun Olam, known in the United States as TIKUN, which produces and supplies medical cannabis.)

Armed with the 3-D modeling, projects can be done “so much faster and cheaper,” Donnelly said. Indeed, he said, as a result of using the technology, he is saving 25 percent on field labor and is increasing the amount of work that can be prefabricated by 33 percent.

Internally, the company just invested $2 million in enterprise resource planning (ERP), business process management software for managing the business and automating many office functions.

“We are poised for the next level of technology,” Donnelly said. “I have to stay ahead so 10 years from now I’m not a fax machine.”

The recently divorced Donnelly splits his time between Midtown East and Garden City, Long Island. He has two grown children, ages 31 and 33. In the fall, Donnelly said he’ll be moving into his “dream building” at 252 East 57th Street, one he has not worked on.

He plays basketball three times a week and does Bikram Yoga two times a week. He enjoys golf and has a 1,000-bottle wine collection.

With all of the personal development work he has done, what type of people does Donnelly like to be around?

Those who are “authentic and self-aware” and take responsibility for their actions.

Donnelly said that he is an ENTJ (extraversion, intuition, thinking, judging), if you consult the Myers–Briggs Type Indicator. ENTJs are charismatic and strong-willed leaders but poor listeners.

That is an issue Donnelly has tackled with Bohlke’s help.

“It’s something we specifically worked on—the listening thing and he embraced it,” Bohlke said. “In the beginning, he had no idea that he wasn’t a good listener. It was one of those ‘holy shit’ moments.”

Donnelly interviewed all of the people in his life about the issue.

“[He] was really open to feedback, whatever they had to say,” Donnelly’s coach said. “Good, bad, ugly. That level of willingness to embrace feedback is a sign of somebody who is a big person.”

Source: commercial