# Greg Romundt; CEO Centurion REIT will answer any questions



## Berubeland (Sep 6, 2009)

Hi All, 

When I went to CAIC I snagged an awesome interview with Greg Gomundt of Centurion REIT. The results are a two part interview over at MDJ 

http://www.milliondollarjourney.com...nd-ceo-of-centurion-apartment-reit-part-i.htm

Plus... and this is the best part...he'll answer any REIT questions online just post in the comments


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## furgy (Apr 20, 2009)

Great post and interview , it was exactly what I was trying to say in the real estate forum a while back about REITs.

I have always felt that REITs invested in commercial real estate (most REITs) are well insulated from "housing" bubbles , even in an environment of falling house prices , well run commercial REITs should still be a good investment.

Some REITs may even benefit from unstable house prices.

He pointed out some other reasons that I hadn't taken into account , and stated it much more eloquently than I ever could.

By the way , my REIT portfolio has grown incredibly in the last month , up 5-10% or so , I think the closer it gets to 2011 and the conversion date for most other trusts , people are starting to look at REITs for income.

Thanks Berubeland.


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## Berubeland (Sep 6, 2009)

You're welcome Furgy

My point originally was that I was worried (and still am) about REITs for another reason and that is more about market sentiment than anything else. 

People are not extremely smart about Real Estate and the different ways buildings are valued compared to residential real estate. If these people panic as they see their own house price go down, they may very well avoid any investment with REIT in the name and pull out their money. 

The other problem occurs with smaller publicly traded REITs. A few years ago, I was tracking Huntington REIT (I think) and they were trading at less than Net Asset Value. (Their buildings were worth more than all their issued shares) So that was a problem. 

Private REITs do not suffer from either of these problems. Their unit values are equal to the price of their buildings. 

Private REITs do suffer from lack of liquidity in that it is harder to get your money out than publicly traded REITs, I'm not sure how hard it is or if there are any penalties etc. and this may well depend on the REIT, they may have different rules.


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## andrewf (Mar 1, 2010)

"Private REITs do not suffer from either of these problems. Their unit values are equal to the price of their buildings. "

The units are worth what the market will pay for them.


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## Berubeland (Sep 6, 2009)

There is only one buyer for Private REIT Units and that's the REIT itself. You can "redeem" your units. The value of the units is determined by the value of the building not "What people will pay today on the stock market" The value of the building is determined by certified independent appraisers.


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## andrewf (Mar 1, 2010)

What happens when the REIT suffers a liquidity crisis? What happens if/when there is a run on the REIT and all the holders want to redeem their units?


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## CanadianCapitalist (Mar 31, 2009)

andrewf said:


> What happens when the REIT suffers a liquidity crisis? What happens if/when there is a run on the REIT and all the holders want to redeem their units?


Investors in private REITs take on liquidity risk. If these REITs get a flood of redemption requests, where are they going to get the cash to redeem units?

Say what you want about publicly-traded REITs but these are highly liquid securities. Even in the worst bear markets, you can sell them (albeit at depressed prices).

Publicly-traded REITs trade at a discount or premium to NAV estimates. You could argue that this is undesirable. Or you can take advantage of it by buying at a discount to NAV. Private REITs may not be as volatile as publicly-traded ones but their NAV estimates also fluctuate wildly. It's just that investors only get to see these fluctuations when NAVs are updated. Just because you don't see the volatility doesn't mean it isn't there.


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## Berubeland (Sep 6, 2009)

If enough investors want their money out they need to sell buildings. 

Greg's over there now answering questions... he gave a much better answer than I did though


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## Berubeland (Sep 6, 2009)

CanadianCapitalist said:


> Private REITs may not be as volatile as publicly-traded ones but their NAV estimates also fluctuate wildly. It's just that investors only get to see these fluctuations when NAVs are updated. Just because you don't see the volatility doesn't mean it isn't there.


I disagree with your statement about the volatility. A building's appraisal value doesn't change from month to month because it's valued based on it's income. It would be unusual for a professionally managed building to vary much even month to month for example. Suites get vacated, they get rented and new tenants pay the rent, month after month and year after year. The percentage at which these turn overs occur is pretty predictable. It's not like every tenant is going to move the exact same month or stop paying their rent at exactly the same time. 

If there are changes, they occur slowly over long periods of time.


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## CanadianCapitalist (Mar 31, 2009)

Berubeland said:


> I disagree with your statement about the volatility. A building's appraisal value doesn't change from month to month because it's valued based on it's income. It would be unusual for a professionally managed building to vary much even month to month for example. Suites get vacated, they get rented and new tenants pay the rent, month after month and year after year. The percentage at which these turn overs occur is pretty predictable. It's not like every tenant is going to move the exact same month or stop paying their rent at exactly the same time.
> 
> If there are changes, they occur slowly over long periods of time.


Of course property values fluctuate. Properties are bought and sold all the time and if you value properties based on how comparables have sold, you have to constantly update your estimate of value based on recent transactions. I'd be very surprised if NAV from one redemption date to the next does not fluctuate.

I can buy the claim that private REITs are *less volatile* than public REITs because investors don't value public REITs only on the basis of NAV. Public REITs are affected by interest rates, economic conditions, market sentiments etc. in addition to the value of underlying properties. However that's a vastly different claim than saying private REIT values don't change much.


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## Berubeland (Sep 6, 2009)

CanadianCapitalist said:


> Of course property values fluctuate. Properties are bought and sold all the time and if you value properties based on how comparables have sold, you have to constantly update your estimate of value based on recent transactions. I'd be very surprised if NAV from one redemption date to the next does not fluctuate.
> 
> I can buy the claim that private REITs are *less volatile* than public REITs because investors don't value public REITs only on the basis of NAV. Public REITs are affected by interest rates, economic conditions, market sentiments etc. in addition to the value of underlying properties. However that's a vastly different claim than saying private REIT values don't change much.


Comparables for income properties are used however they get much less weight than the income generated by the building. The income in a "properly managed" building doesn't fluctuate much. Interest rates affect the market value of a property as well as condition. 

NAV should be calculated by an outside reputable third party commercial appraiser on a regular basis. Not too often (it's expensive). 

I have to say that some private REIT's are positively stinky. League REIT comes immediately to mind. I just hate their marketing. Quite frankly any private REIT worth their salt would be completely ashamed of their current marketing tactics. Their Blue Book is a nauseating combination of "law of attraction" and "positive thinking" jargon. Whenever I read any of that crap I want to run away and so should anyone who doesn't want to lose their money. 

For reference - I love John T Reed's BS Detection list for any investment, real estate or otherwise. http://www.johntreed.com/BSchecklist.html The list is based on real estate gurus and their particular wares, but there are a number of very useful tips there about how to know when you're being snowed. 

The next segment of the interview includes a list of what to watch out for when buying REIT's as well as apartment syndications. 

I am very proud (perhaps overly) for asking such great questions


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## Berubeland (Sep 6, 2009)

Part 2 of the interview went up yesterday. Those of you who own REITs or want to buy them might want to check it out. Check out the comments, Greg discusses the value of the different ways to evaluate REITs. 

http://www.milliondollarjourney.com...d-ceo-of-centurion-apartment-reit-part-ii.htm


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## Belguy (May 24, 2010)

Does anyone have any thoughts of opinions concerning REIT ETF's?

Which one(s) do you like?


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## HaroldCrump (Jun 10, 2009)

Belguy said:


> Does anyone have any thoughts of opinions concerning REIT ETF's?
> 
> Which one(s) do you like?


XRE 
Don't own it, but plan to once it gets close to my target range.


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## FrugalTrader (Oct 13, 2008)

REIT ETFs are expensive. If you buy the top 3 positions, it would replicate the REIT index fairly well.


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## Belguy (May 24, 2010)

So then, what does everybody think about the Vanguard REIT ETF (VNQ) with it's miniscule management fee of just 0.13%? 

https://personal.vanguard.com/us/FundsSnapshot?FundId=0986&FundIntExt=INT

Also, with the Canadian dollar currently approaching par again with the U.S. dollar, it is a good time to be buying U.S. denominated investments is it not?


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## Belguy (May 24, 2010)

The one year return, as of August 31, for the iShares S&P/TSX Capped REIT Index ETF is 36.34% (4.95% for past 30 days as of September 30)!!

http://ca.ishares.com/product_info/fund_overview.do?ticker=XRE


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## slacker (Mar 8, 2010)

XRE is yielding 6.32% right now. I like getting rent payments. I also happened to pick some XRE on the cheap during the flash crash. 

The Vanguard reit etf has a rather low yield...


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## andrewf (Mar 1, 2010)

FrugalTrader said:


> REIT ETFs are expensive. If you buy the top 3 positions, it would replicate the REIT index fairly well.


I think you mean that XRE is expensive, or at least overpriced for what you're getting. Lack of competition.


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## Belguy (May 24, 2010)

With a one year return of over 36% and a yield of over 6%, tell us why we need to be concerned that this ETF is overpriced??


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## andrewf (Mar 1, 2010)

The MER is too high for what you're getting. You're confusing the underlying with the ETF.


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## FrugalTrader (Oct 13, 2008)

andrewf said:


> I think you mean that XRE is expensive, or at least overpriced for what you're getting. Lack of competition.


Yes XRE and BMO's REIT ETF.. both are expensive.


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## Belguy (May 24, 2010)

Ask me if I care!!


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## davext (Apr 11, 2010)

I'm up about 12% on XRE too but I find it hard to determine whether this is a good price to add more to my position.


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## Belguy (May 24, 2010)

Buy low!! Buy on the dips and there WILL be dips!!

NOTHING goes up forever!!!


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## furgy (Apr 20, 2009)

Belguy said:


> So then, what does everybody think about the Vanguard REIT ETF (VNQ) with it's miniscule management fee of just 0.13%?
> 
> https://personal.vanguard.com/us/FundsSnapshot?FundId=0986&FundIntExt=INT


I wonder if that is the total MER , are or they keeping a portion of the individual distributions as well , before the payout to shareholders , one would have to total up all the individual distributions and compare it to the distributions paid to VNQ shareholders.

Just a thought.


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## CanadianCapitalist (Mar 31, 2009)

furgy said:


> I wonder if that is the total MER , are or they keeping a portion of the individual distributions as well , before the payout to shareholders , one would have to total up all the individual distributions and compare it to the distributions paid to VNQ shareholders.
> 
> Just a thought.


No. MER is computed as a percentage of the average daily assets under management. That's the total fees for managing and operating the fund. Trading fees are extra but with broad-based index funds, they tend to be very low. There is no extra skimming off the distributions.


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