On a week that the burgeoning IPO market was being hailed as an indicator that investor appetite for risk had returned, along comes the IPO of two real-estate investment trusts to spoil the party.
On Thursday, Private-equity titan Tom Barracks newly created Colony Financial raised $250 million by selling 12.5 million shares at $20 each, instead of the 25 million shares it had hoped to issue. The shares closed at $19.50.
Another Thursday IPO dud was a REIT started by Leon Black, of Apollo Group Management who, like Barrack, is raising money through the capital markets to snap up distressed commercial real estate debt. Apollo Commercial Real Estate Finance set the IPO price at $20 a share, but the stock closed at $18.50 on its first day of trading. Like Colony, Apollo cut its offering, to 10 million shares from the 20 million that was projected earlier in the month
It looks like investors are not blindly chasing risk, after all.
Take, for instance, one of the weeks blockbuster IPOs, the small Watertown, Mass., company that makes batteries for hybrid and fully electric cars. A123 Systems shares soared more than 50% on its first day of trading Thursday.
At first glance that is surprise, since the company is posting losses and burning through cash. But perhaps those bets are on shorter odds than that balance sheet might seem to indicate. That’s becuase the company is likely to benefit from the Obama administrations green technology push. And a bet on government stimulus money is hardly the same as making a bullish bet on an overall economic recovery that an IPO revival would seem to suggest.
In fact, the problem that the REITs had on their public debut indicates that investors may be still wary about a nagging, fundamental risk in the economy: Whether theres another leg down to come in the commercial real-estate market. (Despite what the investment banks say)
To be sure, the new REITs may have unique problems. As the LA Times points out, Colony is structured so that the funds managers, like Barrack, are paid hefty management fees. Another problem is that there is a glut of real-estate vulture funds tapping to capital markets at the moment.
Still, the dull debuts for the new REITs are likely a good barometer of the markets appetite for risk.