For the second time this year, an activist investor is calling for one of the real estate investment trusts once led by late billionaire Sam Zell to liquidate its remaining four office buildings and return the cash to investors rather than seeking out new investments.
The new activist investor adds pressure to the leaders of Chicago-based Equity Commonwealth to wind down the REIT that Zell helped take control of in 2014, when it was known as CommonWealth REIT. It was among several publicly traded REITs created or overseen by billionaire Zell before he died in May 2023 at age 81.
In a letter this week to Equity Commonwealth’s board of trustees, San Francisco-based Indaba Capital Management urged the REIT to stop seeking out new investments for its $2.2 billion cash on hand. Rather, the investor with an approximate 3% stake in the REIT said the focus should be on selling off remaining buildings in Texas, Colorado and Washington, D.C., and ending the company’s operations.
The letter signed by Indaba Capital Management Managing Partner Derek Schrier was made public after the investor said it privately expressed “concerns about your current course of action.”
It comes after a similar move by another approximately 3% shareholder, Land & Buildings, went public with similar concerns. The Stamford, Connecticut-based firm is led by well-known activist investor Jonathan Litt.
The latest push by Indaba Capital Management comes because the investor said it believes the REIT “is severely undervalued due to its leadership’s actions and decisions.” In the letter, the investor said concerns about how the REIT’s leaders might re-invest cash are pushing down the share price to an approximate company value of $2 billion, or less than the value of cash on hand.
Schrier’s letter said Equity Commonwealth’s stated goal of exploring a “transformative” acquisition through the end of the year leaves the REIT’s leaders with incentives to “recklessly allocate capital to a risky transaction” without input from shareholders. That would allow executives to continue in their high-paying jobs rather than winding down the company and returning proceeds from sales to investors.
The letter described returns to investors in recent years as “extremely disappointing,” adding: “This reinforces the merits of a liquidation.”
Equity Commonwealth shares closed Tuesday at $19.51, slightly above the $19.07 closing price in March after Land & Buildings went public with its liquidation demands.
Equity Commonwealth did not immediately respond to a request for comment from CoStar News on Tuesday.
Zell Takeover
Zell and longtime lieutenant David Helfand in 2014 took over the REIT after shareholders led by Corvex Management and Related Cos. voted out leaders Barry and Adam Portnoy.
The father and son were criticized for benefiting from fees generated from managing properties owned by the REIT, which shareholders argued was a conflict of interest.
In his letter earlier this year, Litt praised that leadership change as “one of the greatest corporate governance victories in the recent history of the real estate sector,” but said “continuing the status quo at EQC risks squandering this success.”
Litt argued that the REIT for which Helfand remains chairman, president and CEO has bloated expenses for a company with just four properties.
The lone remaining buildings are the 32-story 17th Street Plaza tower at 1225 17th St. in Denver; the 11-story Herald Square at 1250 H Street NW in Washington, D.C.; and two buildings in Austin, Texas: the 20-story Capitol Tower at 206 E. Ninth St. and the five-story Bridgepoint Square 4 at 6200 Bridge Point Parkway.
There is a “process underway to sell three of its remaining four properties,” according to Schrier’s letter this week.
Equity Commonwealth has talked for years of using its cash pile for a major acquisition, including a failed $3.4 billion takeover bid for New Jersey-based industrial landlord Monmouth Real Estate Investment Corp. That firm's shareholders rejected the bid in 2021.