When private equity firm Arkhouse Partners and a group of investors acquired a stake and made a bid to buy office REIT Columbia Property Trust last year, the goal was to ensure that multiple outcomes generated success.
Arkhouse co-founder Gavriel Kahane spoke with the Activist Investing Today podcast about how his real estate private equity background helps advise the fund’s public market activism.
“With respect to Columbia Property Trust, we were sort of drawn to the REIT space generally because it was hard to ignore the amazing dislocation and turmoil that was unfolding in the public sphere for REITs,” Kahane said. “The thesis was, ‘We have a bunch of different ideas we can propose to management, which may include a privatization in part or in whole, but if we nominate a slate, that will serve as the ultimate ripcord or last-ditch effort for us to effectuate change on behalf of shareholders.’”
Arkhouse and a group of investors with a 3.3% stake withdrew their director nominees after Columbia announced a strategic review to consider alternatives for the business, and in September funds managed by Pacific Investment Management Co. LLC agreed to buy Columbia Properties Trust for $3.9 billion including debt.
“The trade we made was we would drop our proxy contest if the company decided to seriously explore privatization,” he said. “The way we looked at this investment and the way we look at others is we want multiple outcomes to be a success for us. We want the downside to look great, and in this case that is what happened.”
Kahane, however, said he wasn’t surprised that Arkhouse was outbid. “In this environment of rapacious private demand, I would be surprised but excited if we were the winning bidder on any one of these privatizations. The competitive landscape is tougher than ever,” he said.
Arkhouse didn’t make a bid for its next target, another REIT, Preferred Apartment Communities Inc. (APTS), but it did launch a director contest. In February, before the contest could take place, Blackstone Real Estate Income Trust agreed to acquire the REIT for $5.8 billion or $25 a share.
“We didn’t think we would win in a privatization and didn’t even try but encouraged the company to explore strategic alternatives including a privatization, and the rest is history,” he said.
Overall, Kahane said Arkhouse’s private equity background gives it a different view of public markets investing. “Some of the reason we see the opportunity set is because we are coming at the public market from a very different view than a typical public investor is,” he told AIT. “We don’t need to call investment sales brokers to know there is a depth of demand. We know the depth of demand.”
Check out the podcast with Gavriel Kahane here: