The Intelligent REIT Investor Guide

CHAPTER 17Management Matters

“Management changes, like marital changes, are painful, time‐consuming, and chancy.”

—Warren Buffett

I'm sure you've heard the phrase, “Bet the jockey, not the horse.” It refers to the idea that investors should focus more on the management team than the business model.

I consider the adage to be quite true, especially in REIT‐dom, where management teams are responsible for all the obligations of being a landlord – from finding a tenant to collecting the rent, taking care of repairs, and maintaining the balance sheet – and, of course, sending distributions (i.e., dividends) to investors. Stated bluntly, bad management can destroy value in a portfolio of real estate properties. Good management can add value.

I often tell people that, when you invest in a REIT, you're not only placing your “bet” on the underlying real estate. You're also putting your hard‐earned money toward paying the “jockey” that's running it for you.

That's why I spend a lot of time meeting with C‐suite executives, always looking for information to help me form a deeper understanding of the underlying investment strategy – and whether it allows my goals to be aligned with theirs. By that, I mean there's no conflict of interest between management and shareholders. Also, there's an independent board of directors involved and hopefully some insider ownership going on as well.

When leadership has some obvious skin in the game, you'd better believe it makes a difference in how things ...