So private REITs operator Avenue Living had a major press release and The Globe and Bloomberg chose very different ways of covering it:
The Globe’s Andrew Willis:
Calgary’s Avenue Living plans IPOs for $9.8-billion apartment and self-storage portfolios
Bloomberg’s Paula Sambo covered it more skeptically:
Two Canada Real Estate Funds Halt Redemptions as They Eye Going Public
The press release puts a positive spin like "the optimal path to permanent liquidity." But I'm with Paula Sambo, skepticism is warranted. Private markets are presented as the land of opportunity and yet, this private fund spins going public as a victory. At the same time, Avenue Living says the funds have to have redemptions frozen pending the review of the proposed IPOs. The official reason is "to preserve flexibility and ensure the equitable treatment of all unitholders during this process." An IPO on the horizon with flexibility and equity for all! I don't know if the clients can take this much winning!
As long as unitholders are advised that an IPO may be forthcoming, that seems pretty equitable to me. I don't know why there has to be a freeze on top of that. Investors can make their own determinations whether they want to stay or leave.
In my coverage of Nicola, I mentioned a precedent for a real estate fund that converted from private to public and promptly dropped like a rock from the pre-listing NAV. That's Bluerock Real Estate Fund. It's still down about 28% a few months later. So an IPO is not always an unqualified triumph. The question is whether the public markets will validate Avenue's current NAVs. Avenue's maneuver reminds me of this old joke:
A man is sentenced to death. Before he's taken away, he asks the king for one final request.
"I can teach your horse to fly," he says.
"But it will take one year."
The court bursts out laughing. The king is intrigued.
"If you fail, you die."
The man agrees and is thrown into a comfortable cell. Back in prison, his friend says,
"Are you insane? Horses can't fly. You've just delayed the inevitable."
The condemned man shrugs:
"A year is a long time. In a year, the king might die. I might die. The horse might die. Or... the horse might learn to fly."
Any business of scale prepared to endure the administrative burden can go public. It's even easier to launch a "strategic review." An IPO was a path available to virtually every other fund that has made the news for gating redemptions.
Valuations are subjective. You won't be surprised that some people disagree with the current valuations used by Avenue. I first started hearing rumblings about this back in October. So like many other retail private funds, there's uncertainty, there's a bit of a contagion effect. Doubts are spreading, you see this in headlines daily across all private markets.
I am told some of the advisors caught in this freeze Golden IPO Bonanza include Mandeville and Richardson GMP. David Kaufman's Westcourt signed a distribution agreement with Avenue back in 2018 earning 1% on money they raised. I don't know if their clients were still in the funds, but in general, Westcourt has been an enthusiastic supporter of alts.
BTW, I am not alleging anything sinister going on at Avenue Living. I haven't looked at their portfolio at all. It's just a well documented phenomenon in the markets that many funds trade at a discount to NAV. For example, Bill Ackman has a closed-ended fund that is 90% made up of liquid large caps. It still trades at a 25% discount to NAV.
While Avenue Living is front and center as the operator of the underlying real estate, the fund's official manager is Invico Capital. In late February, Paula Sambo had another article titled "Invico calls investors to manage exodus risk." Invico came up with something called a "structured liquidity management plan." They are prolific innovators!