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As publicly traded REITs struggle, they become prime targets for activist investors seeking quicker returns. In today’s email, we cover how Texas-based Whitestone REIT recently faced pressure from investor Bruce Schanzer and his firm, Erez Asset Management, to accept an acquisition offer from Fortress Investment Group. Despite initial rejection, Schanzer publicly criticized the board's decision and questioned the company’s spending and board composition.

The rise in new and revised building codes are being driven by net zero emissions targets and an increased focus on energy efficiency and sustainability. As we examine in a new article, the costs associated with implementation are putting pressure on building owners and developers, who are already dealing with a challenging market.

This week in Propmodo Technology, we explore energy management. Governments worldwide are implementing regulations to reduce energy and carbon consumption, pressuring landlords to comply and help tenants, especially in multifamily buildings. Despite challenges, significant savings are possible through "green clauses" in leases, smart technologies like thermostats, and educational resources.

Now, let's dig in!

Another REIT Battles Against Activist Investor Takeover Bid

As more publicly traded REITs underperform, they become targets for investors seeking a quicker return on their investments. This has been evident with Equity Commonwealth, a small commercial REIT that faced a proxy battle with Jonathan Litt's investment firm, Land & Buildings. A similar scenario is unfolding with Texas-based shopping center REIT Whitestone. Last month, investor Bruce Schanzer and his firm, Erez Asset Management, called for Whitestone to accept an acquisition offer from Fortress Investment Group. Although the board initially rejected the offer, Schanzer publicly criticized the decision, posing several scathing questions to the management team.

“Why should Whitestone remain an independent public company, with all the attendant costs, when 'excess' G&A expenses (public company and standalone corporate costs well above other shopping center REITs) are, we estimate, approximately $7-8 million per year and drag earnings down by roughly 15 percent per year?” he asked. He also challenged the company's assertion that its value is higher than the buyout offer: “Presumably, management and the Board feel the intrinsic value of the Company is even higher than the price at which Fortress was prepared to transact. If that is the case, why haven’t you prioritized investing the Company’s capital, or your personal capital, into Whitestone’s undervalued stock?”

Additionally, he questioned the composition of the board: “If you were organizing a shopping center REIT like Whitestone today and picking a group of trustees to oversee the strategy and execution of such a business, would you again select a lawyer, a PR professional, an energy executive, an investment banker who specializes in bankruptcy, and a former politician? Why wouldn’t you want at least a few people who have substantial experience owning and operating a portfolio of shopping centers and/or managing a public REIT among those trustees?”

Much like Jonathan Litt, Schanzer’s firm owns around two percent of the equity in the REIT. Schanzer also aims to leverage his influence over other investors to force changes on the company’s board. Although neither of these bids has been successful so far, if REITs continue to underperform, we will likely see more activism from investors. If one of these efforts succeeds, it could inspire more investors to seek ways to recover their investments from struggling REITs.

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