FCT: When Portfolios Change Hands Smoothly

There are advantages of buying properties already aggregated into large portfolios. As such,entire portfolios are changing hands with increasing frequency.

Take the recent sale of the assets of ING Summit Industrial Fund LP, one of Canada’s largest owner of light industrial properties. The ING Summit assets were recently sold to a joint venture between KingSett Capital and AIMCo (Alberta Investment Management Corp) – in a deal that proved to be a complex and noteworthy transaction.

Another example in the wave of deals that has been sweeping the real-estate sector, is the sale of Timbercreek Real Estate Investment Trust. Interestingly enough, global trends and international interests have sparked a significant increase in activity in the apartment sector, a corner of the real-estate market that has traditionally been seen as solid and predictable. While the value of office buildings and shopping centres may have declined throughout the recession, the apartment sector – which had more opportunities to access new debt or refinance during the credit crisis – has remained relatively stable. Weighing the benefits, Timbercreek REIT recently sold its' portfolio to private equity investors.

Although advantageous, when a portfolio does change hands, it is a significant undertaking, and one that is often done with only a short period of time for due diligence. Often access is given to title reports and other tools for analysis, and with the sheer quantity of properties to go through, most investors think it wise to turn to title insurance.

    David Ehrlich, partner in the Toronto office of Stikeman Elliott and one of the leading lawyers in the field, explains: “I think these kinds of transactions would be impossible without title insurance. There are so many individual buildings to consider, and some of them will inevitably have complicated titles (the lease of a sub-lease, for example, operating leases, etc.) So, in the narrow amount of time that’s given to evaluate them all, I can’t imagine being able to keep a handle on things without the help of title insurance.”

A well-known example of portfolios changing hands is CAP REIT (Canadian Apartment Properties Real Estate Investment Trust) and its acquisition of ResREIT (Residential Equities Real Estate Investment Trust). In the deal, CAP REIT nearly doubled its portfolio, buying 11,000 apartments in a single transaction. It instantly passed those advantages onto its shareholders; advantages that include a leading market position, cost savings in operating synergies, enhanced liquidity for unit holders and, of course, a broader overall portfolio with reduced risk.

  Thomas Schwartz, President and Chief Executive Officer of CAP REIT, relayed the necessity of title insurance to help throughout the deal. “The people at FCT were absolutely tremendous at facilitating the process. But I think what was most invaluable, was simply the peace of mind – just knowing that any little problems that might come up would be taken care of. I think that was something we owed to our shareholders, as well as to ourselves.”

 

on April 6, 2011