Podcast 136: The First Single-Property REIT in the United States with Stephane De Baets

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On this week’s episode of the InvestFourMore Podcast, I speak with Stephane De Baets, who has created the first single-property REIT in the United States: Aspen REIT. Stephane has a ton of experience with large commercial projects in Europe, Asia, and the United States. His company bought a resort in Aspen Colorado, refurbished it, and now they are offering it as an REIT (Real Estate Investment Trust). On the show, we talk about how Stephane became so successful in real estate, why he started this REIT, and how it works.

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How did Stephane get started in real estate?

Stephane was born in Belgium but made his way to Asia in the 1980s when they had a bad recession. His job was to restructure the debt on failing hospitality companies and make them profitable again. He actually ended up starting his own bank in China and bought many hotels in Asia. He bought distressed assets, made them profitable, and sold them, much like flipping houses…but on a huge scale! Stephane took his strategies to the United States, buying distressed properties in the hospitality industry.

Is commercial or residential a better investment?

Why did Stephane want to start a single-property REIT?

In Asia, Stephane created a number of single-property REITs. Most REITs have a number of different properties in them. They could consist of malls, office buildings, apartments, or even single-family homes. When someone invests in an REIT, they are usually investing in the manager and hoping they do a good job. With a single-property REIT, there is only one property. You do not have to rely on the manager to pick good investments because there is only one, and you know what it is. Before the Aspen REIT was created, there were no single-property REITs in the United States.

Is a REIT a good investment?

What is the Aspen REIT?

Stephane and his company bought an Aspen ski resort seven years ago. The resort needed money, and he saw a tremendous opportunity to add value. They put about 50 million dollars into the property and are constantly improving it. It is a destination for the rich and famous and a very high-end place. Stephane created the REIT so anyone could invest in part of the property. The REIT is listed on the New York stock exchange with a minimum investment of $2,000. The details on the property, as well as numbers on profit and loss, are all available through AspenREIT.com. The expected return is about 5.8% based on the strong A class financials of the property.

What are Stephane’s plans for the future?

Stephane plans to do more single-property REITs in the United States. He prefers properties that he can add value to that will eventually become strong A class performers. As for the Aspen REIT, there is no plan to sell in the future, but he says if the right offer came along that would benefit the shareholders, they would sell it. I asked about the possibility of getting preferential treatment at the resort as a shareholder, and unfortunately, that does not happen. However, he states the shareholder meetings are something you do not want to miss!

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EPISODE 136

 

[INTRODUCTION]

 

[0:00:14.0] MF: Welcome to the Invest Four More Real Estate Podcast. My name is Mark Ferguson and I am your host. I am an active real estate investor. I flip 15 to 30 houses a year. I’ve got residential and commercial rental properties. I’m an agent with nine people on my real estate team who sold thousands of houses over the years, and I talk about what’s going on in my career as well as interview other amazing agents, investors, landlords, flippers, wholesalers and companies who can help those people succeed.

 

I want to give a quick shout out to my sponsor, Patch of Land. They funded a flip for me in six days. I emailed them on a Sunday afternoon. They responded in less than 15 minutes. They have rates below 8%, work in 45 states, will fund 85% of the deal and fund the repairs as well. Great company, who I love working with, Patch of Land.

 

For my podcast listeners, I’ve a special discount page for my products, investfourmore.com/discount. That’s investfourmore.com/discount. We’ve got coupons on all my coaching programs. Some of those programs involve calls with me, consulting, video training, and much, much more.

 

All right, let’s get to the show.

 

[INTERVIEW]

 

[0:01:47.5] MF: Hey, it’s Mark. We’re back with another show. Today, I’ve got a very exciting guest. Hopefully I can pronounce his name right. I think I got it, but it’s Stephane De Baets, who is the CEO of Aspen REIT. I’m excited to talk to Stefan, because we’ve never really talked about REITs much on this show. Not only is he running the REIT, but it’s a very unique REIT and it’s brand new. I’m really excited to hear about him, get some of this back story and learn about this REIT and what’s going on with it.

 

Stephane, thank you so much for being on the show. How are you?

 

[0:02:19.8] SDB Thank you for having me. I’m very well. Thank you.

 

[0:02:22.9] MF: No, thank you. I always start this off first with my guest before we get into the REIT and everything is going on with that is just a little bit of background on how you got started in real estate, your history, what got you to this point, if you don’t mind.

[0:02:34.7] SDB Hey, not a problem. I was born and raised in Europe, spend all my education over there and then decided – I’m coming from Belgium, which is a very small country. I decided that it was time for me to see the rest of the world, so I migrated in the early 90s to Southeast Asia. I was a institutional stock broker over there.

 

I don’t know if you remember, but in 1997 there was the so called Asian crisis, when the local currency got defected from the US dollar. A lot of very wealthy people in Asia went from being billionaires to being bankrupt just because of currency devaluation.

 

At that time I got involved into the restructuring of the portfolio about debt. By destiny or by choice, I was handling most of the hospitality-related loan. I got to develop a very acute expertise of hospitality asset and I did that from I would say the late 1990’s, so ’98, ’99, up until 2008 when most of the non-performing loans got completely we structured and I set up my own boutique hospitality-centric investment bank based in Bangkok in Thailand.

 

We started investing on behalf of our client, buying hotels, developing hotels. We sold most of the portfolio just the height of the Lehman Brothers crisis. At that time, we decided to apply what we had learned in the Asian crisis and say, “Why don’t we take advantage of the US crisis and acquire a very good [inaudible 0:04:27.0] that’s below replacement cost?”

 

We went on a shopping spree and we identify a few very good asset operating in extremely high-value to entry market. We offered some with the current owner to purchase those property and to inject a substantial amount of capital in order to bring this property to the former glory. That’s how I got involved into the hotel investing in United States.

 

[0:04:57.7] MF: Very cool. No, very interesting. You’ve been all over the place. I do a lot of fix and flips myself, so in a much smaller scale the same idea of buying distressed properties, making them better and then creating a lot of value using different strategies. With this REIT, have you ever done a REIT before or been involved in one?

 

[0:05:17.3] SDB Yes, we actually. Even so a single-asset REIT is a first in North America. The business model of taking single-assets and effectively allowing the general public to piggyback on the game, which is typically only reserved to market professional or institution, that business model is being developed in Asia for about 16, 20 years. They call it either property fund, or single-asset REIT.

 

We did acquired a few of these in Asia and they are still performing extremely well. We saw that in a day and age where the work on the street is really to cut the food chain and to create point-to-point investing. It was necessary to bring this kind of projection of America and to a low demand on the street, choose a direct exposure to asset that they like and to enjoy 100% of the economic interest of those assets without having to bleed to a food chain of adviser, manager, asset allocator, etc., etc. In my humble opinion, it’s really something that expectedly democratization of the private equity investing business model.

 

[0:06:40.1] MF: Okay. Very cool. Now a lot of my audience would probably be familiar with REITs and how they work real estate investment trust. Can you explain the traditional REIT and how it works in the United States right now?

 

[0:06:51.8] SDB Yes, absolutely. Traditionally in United States, REITs will be a portfolio manager taking money from all kind of institution in the general public, then building a diversified portfolio of asset. All the REITs that you see currently private or publicly traded are a portfolio of bundle assets put together by a fun manager.

 

Now the problem with that – I mean, the beauty with that is you have diversification and you have a very large value assigned to a portfolio, so you have a certain degree of liquidity, you have diversification. That’s what people like too.

 

We are different in a sense that if you invest into a REIT today, you don’t have a golden picture of what you’re investing in. You see a portfolio of asset, but there’s nothing guaranteeing you what the portfolio of asset will look like in 6 months, 12 months and 24 months.

 

Effectively, it is fair to say you are not investing in assets themselves, you are effectively investing into asset subject to a strategy by a portfolio manager. That could be value-added, or value not added depending on the quality of the fund manager managing the portfolio.

 

What we’re doing here is completely different. We say we’re not offering diversification, but we create a REIT that has only one and will always have only one of it. What you see is what you get. You like that property, you want to have exposure to it, you buy the share of the single-asset REIT and that’s all what you’re going to own.

 

In the future, what I think is going to happen like in other market is the asset class itself will develop, which means we’re going to have multiple single-asset REIT in the near future listed on the various exchange in United States. The investor, the general public will be able to build their own diversification.

 

I’ll give you an example, I like the New York market, I want to own a piece of the St. Regis New York, get me some share of that. I’m very [inaudible 0:09:12.1] on the Miami market, because it’s a booming town and everybody is moving there, because of that reason. Let me buy a few shares of the Delano.

 

I am [inaudible 0:09:22.6] on Los Angeles, because of the forest fire and the high property tax on Vermont. I don’t want exposure there. If you had a multiple series of single-asset REIT offer to the investor, you are able to build up your own diversification.

 

What we are is we are the antithesis of the current REIT on the market. We give access to certain property to the general public and we believe the general public is smart enough to make their own investment decision and create effectively their own diversification.

 

[0:09:56.4] MF: That’s a very interesting concept. It makes sense to me, because I think one thing, I’ve looked at investing and REITs before. I used to have some money in REITs. I pulled everything I had out of them and in the stock market and put in my own properties, but you didn’t really know what you’re investing in as you said. You know what asset class you’re in, you know maybe some of the properties, but it’s constantly changing.

 

You are relying on that portfolio manager just like if you’re investing in a mutual fund, you’re relying on that portfolio manager. It is a very interesting concept to be able to say, “Hey, I know what property I’m investing in. I know where it’s at. I know it’s not going to change.” It’s very cool. This is the first time it’s been done in the US, right?

[0:10:32.6] SDB Correct. You hit the nail on the head, if I may use this analogy. What we’re doing today is effectively what you said. It’s like before single-asset REIT, if you want to have exposure to stocks you need to buy a mutual fund. You are not able to cherry pick your own stock for your own portfolio. What we’re doing is the exact thing, but for real estate properties. Up until today you have walked into a strategy from a manager what we’re going to leave basically the general public to make their own choice, because we think there is more than that.

 

[0:11:08.4] MF: That makes a lot of sense. Tell us about the Aspen REIT, what it’s about and how it got started.

 

[0:11:15.8] SDB Well, we’ve been, you know, going back to my little history. In 2010, Starwood Hotel and Resort, which is now Marriott effectively has made a commitment to their shareholders that they wanted to go into the so-called asset-like model. At the time, Starwood was a mixed bag of management contract and property that they own on their balance sheet.

 

Because there was a liquidity crisis, they wanted to show their shareholders that they would only focus on the management contract side of the business. We went to see Starwood at the time and look into their portfolio and try to find out which property was in dire need of capping, of capital investment to improve the product.

 

At the top of their lease was that ski resort hotel in Aspen Colorado. That was really didn’t have any money injected into the property for the last 10, 15 years. It was tired. A beautiful property. We really like the economics and the fundamentals of Aspen, because I don’t know how much you are familiar with the city, but this is truly impossible to get new building permit for the sake of building more hotel.

 

The town is so conservative, want to preserve the very charming aspects that really make Aspen such a wonderful holiday destination. We look at this and say, “Okay, this property needs money. This property is trading at a discount to replacement cost.” The environment in which the property is located is of highly – I would say it’s a highly sexy asset. It’s a fantastic location, and it will come back because it’s a location that we target the 1% in United States.

 

You and I know, when there is a recovery, typically the 1% we cover faster than the rest of the general public. It’s really take all the boxes. We bought this thing 2010. We’ve been holding this asset for the last seven years. Extremely happy. The wholesaler has been named in the past best ski resort in North America, best buy in the world. Really the home where all the rich and famous go skiing.

 

We decided, if we want to test the asset class of single-asset REIT, there is absolutely no better asset than this one. If this one doesn’t fly, that means there is no demand for single-asset REIT in United States. I didn’t want to go where you say B product. We wanted to go with a A++ product, and that’s what we bring to the market.

 

[0:13:59.4] MF: That makes sense. Yeah, I’m actually from Colorado. I don’t go to Aspen much, but you can buy houses for 35 million in Aspen if you want. It’s crazy up there.

 

[0:14:09.2] SDB I think that a couple of years back, one of the shake from Saudi Arabian sold this house for a 135 million.

 

[0:14:16.3] MF: Yes. It is crazy. Many famous people like you said, extremely high-price area. How does this REIT work for investors, or people who want to join up? What can they expect out of it? How do they invest into it?

 

[0:14:30.1] SDB It’s very simple. What we do as I mentioned earlier, we democratize the private equity with a state-investing model. What we are offering, we’re offering the general public to keep as all partner and to own shares in the St. Regis Aspen Resort located in Aspen. The shares will be listed on the NYC American Exchange.

 

There will be some degree of liquidity. Is it going to be the most created stock? Absolutely not. Are you going to have access to optional liquidity should have the desire to buy more, or to take some profit off the table? Absolutely.

 

It will be shared, listed on the national exchange. The company Aspen REIT is regulated by the SCC. The hotel is managed under a long-term management contract by Marriott, a subsidiary of Marriott St. Regis. We have elevated, we turn on managing the manager.

It’s a very simple structure. What to expect in terms of return in the A1 circular, we build up the so-called magic page. If we look at perform a historical number, it indicates that based on the 90% dividend policy, the expected year at the IPO price would be around 5.8%.

 

[0:15:58.4] MF: Okay. Is there a minimum amount people have to buy to get into that investment, or is it you can buy a partial share? How does that work?

 

[0:16:06.2] SDB Well, the minimum lock tie is a 100 share. The price of the share is $20. If you multiply the minimum lock tie by the prize, the minimum investment is $2,000.

 

[0:16:20.1] MF: Okay. When you create this –

 

[0:16:21.8] SDB I think what’s really cool is if somebody comes to you and say you can play with next to the big boys, the Black Walk, the Prince Al-Jaweet for a mere $2,000 and you’ve got the 5.8%, we believe that this is a highly compelling offer.

 

[0:16:38.5] MF: Right. It’s very interesting. I guess, what are your plans with the resort? Are you planning to leave it as it is and just keep managing it? Are you planning to infuse this money into it and make it better and change a lot of things?

 

[0:16:49.6] SDB We’ve been owning the asset since 2017. We’ve injected an excess of 50 million dollar in a great and refurbishment of the property. We have just been refurbishing the restaurant prior to the winter season; the restaurant, the lobby, all the carpeting and all the common areas and we’ve build up a new board.

 

We are on manager that belief, the old days of owning a hotel and doing nothing for 10 years and then spending a lot of money recreating the product again. We think that in order to improve the guest experience, you need to be constantly improving here and there to create a better experience for the guests. We’ve been very successful in doing this for the last seven years and we intend on keeping the same strategy going forward.

 

[0:17:43.5] MF: Very cool. What is your end plan for – are you planning just to have this REIT go on forever, or is there a certain amount of time that it’s guaranteed to exist? Is there ever an endgame with this investment?

 

[0:17:56.6] SDB The endgame, I don’t have a crystal ball in front of me, but I think that what the endgame is going to be is one day somebody is going to want to own this asset, because it’s a highly desirable asset and they might be an investor writing a non-solicitated offer to the board. If the board have seen that and then director saying that the price is right, the board would entertain the sale to the prospective buyer and the money will be returned to all the shareholders of the REIT.

 

Effectively, it’s very clear to say there is an income stream, but one day somebody will make an offer that we can’t refuse and yes that will be sold. Hopefully a very decent profit would be returned to their withholders.

 

[0:18:45.4] MF: Okay. That makes sense. Is there any kind of policies in place that says you can’t sell it for less money than you have into it so the shareholders would lose money, or is that just completely up to the principals?

 

[0:19:00.3] SDB It’s completely up to the board, but obviously have all our interest aligned. We as current owner will retain 51% of the interest into the asset. Everyone has the same interest and if the board does not believe that it’s the right transaction, the transaction will never be even contemplated. We have a board, which is made of professional independent directors. Their duty is to make sure that it is showing interest of the shareholders basically the priority of this company.

 

[0:19:39.7] MF: That make sense. Very interesting. I have learned quite a bit about REITs with this. Assuming that this goes as planned, it’s a success for you guys, what are your plans after this? Are you going to look for more single-shared REITs in the future? What type of properties would you look at coming up?

 

[0:19:56.8] SDB Absolutely. This is effectively for a kind of proof of concept takes aside. We’ve lined up access to a series of highly recognizable hospitality asset and shoot the first one fry off the shelf, then we will be bringing to the market a series of similar properties.

You’re asking me what type of property do we really fit really the business model? I think that property that has a high degree of emotional content fit the bill. I think that people are excited to be a shareholder in the Aspen, St. Regis Aspen because as we mentioned this is where the rich and famous go skiing. It’s one of the best hotels in the country, and it is highly, for the lack of a better word, sexy.

 

I think that want to touch into the asset plan, emotional premium to be an owner is quite high. If you take a model by the size of a motor way, I’m not too sure that people will assign the same emotional ownership premium to it. All focus will be to bring profit asset that any investor can recognize very easily, and to capitalize on that emotional premium.

 

[0:21:19.6] MF: That make sense. Speaking of this hotel, if you’re an investor in the REIT, do you get any kind of help getting a room or reservation to – are there any advantages to being an investor in the REIT?

 

[0:21:30.7] SDB Well, one of the advantage is that you’re invited to the shareholders meeting. I think that if you go to the shareholders meeting, we’ll put together a very good show. It will be fun. I think that investor will be able to mingle with very interesting people. Once you’re a shareholder, a lot of people ask me and say, “Are you going to give this down to the people owning the share?” I always tell them, you don’t want a discount because you’re a shareholder. Effectively, the more money the hotel makes, the higher the share price. You don’t want to have special privilege, because if those privilege are granted to you, I have to grant it to everybody else and effectively depletes the profit and the value of the asset.”

 

I think that the fact that investor will be able to be an owner of the St. Regis Aspen is great in itself to enjoy and the board market yield is a second benefit. Like I said, we’ll do a very good show for the shareholders meeting every year in Aspen.

 

[0:22:35.1] MF: That makes sense. I agree with the giving perks. I think it’s usually better to keep everything separate and accounted for. Otherwise, can make a big mess figuring out who paid what and who gets what.

 

Stephane, great information. I think those are all the questions I had about the REIT. If people are interested in investing in this, you mentioned it’s going to be on the New York Exchange. Is there somewhere they can get information on, or website they can go to?

 

[0:22:59.6] SDB Yes. On the right term is the marketing group. The marketing group has put together a website, so we are raising money under the A1 job tax regulation. You can go to aspenreit.com. www.aspenreit.com and all the information about the offerings, the underwriter, how to participate will be part of the website.

 

[0:23:30.9] MF: Great. I’ll put that on the show notes as well, so people can get there on my site on Invest Four More if they’re interested. Very interesting concept. I’ve learned a lot myself about the single-asset REIT. Is there anything else you want to add before we head out of here?

 

[0:23:45.2] SDB Not really. I think we try to explain the product as simple as it is. It’s really truly a simple product. You are a direct shareholder into a property and you enjoy a 100% of the economics of that property, and the shares are listed on this project change and hopefully the public like this product and we’ll be able to see 25 or 50 single-asset REIT within the next 24 months.

 

[0:24:13.7] MF: Actually, I just thought of one more question before we head out of here. If you become an investor, a shareholder in this project, how much do you get to see the financials of what’s going on in that hotel? Do you get full disclosure, or you’re just given a water-down report? How does that work?

 

[0:24:28.3] SDB Well, if you go right now into the website, you see the A1 offering document and in the A1 offering document you have a management discussion about the financials, you have the audited financials and we are not providing forward guidance. All of the invest historically speaking, you take a look at the circular and then you see the degree of disclosure that we are doing for this property.

 

We believe that the more transparency you give to the shareholder, the more value you created. This is probably as much information as anyone will ever get looking into property asset.

 

[0:25:08.7] MF: Okay. Awesome. Well, Stephane thank you so much for being on the show. I really appreciate it. A lot of great information, the Aspen –

[0:25:16.4] SDB Thank you for having us. It is great.

 

[0:25:19.1] MF: For sure. If I had to Aspen, we have to check this out for sure, because now I’ve got – I’m interested in it. But yeah, thank you again. I really appreciate it. Yeah, good luck on this project.

 

[0:25:28.8] SDB Thank you so much. Have a great day.

 

[0:25:30.1] MF: All right. You too.

 

[END]

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