Nexregen Firewheel REIT aims to let small investors get in via the Internet

Real estate veteran Ray Wirta has put a new spin on property investing in Texas.
His Nexregen Firewheel Real Estate Investment Trust is selling shares of Firewheel Village shopping center in Garland to investors.
Mr. Wirta wants to make it easier and less expensive for small investors to buy real estate on the Internet instead of going through a financial adviser.
Nexregen, which stands for the next real estate generation, is offering 275,000 shares at $10 apiece, or $2.75 million.

So far, it has raised about $2 million from about 60 investors, said Mr. Wirta, vice chairman and former chief executive of real estate giant CB Richard Ellis.
Nexregen may face investor hesitancy given the credit crisis and a weak national economy. For the same reasons, REITs have performed poorly.
Equity REITs returned 1 percent this year through Monday. In 2007, they posted a negative 16 percent return.

"I believe that real estate is a great savings vehicle," said Mr. Wirta, who lives in Laguna Beach, Calif.

Nexregen's prospectus says his net worth exceeds $25 million.
His partner, Harold Hofer, a Southern California real estate lawyer, has been involved in shopping centers for 25 years.

REITs 101
Nexregen doesn't appear to differ much from how REITs started in the 1960s – as a way for small investors to own real estate, said Ron Kuykendall, a spokesman for the National Association of Real Estate Investment Trusts.
He notes that as a private REIT, Nexregen doesn't have to follow disclosure or corporate governance polices or provide performance data, as the nation's 150 publicly traded REITs do. It also offers limited liquidity options.

Nexregen is registered with Texas securities regulators but is exempt from federal registration because it's selling shares in one state.
Its sole property – Firewheel Village – is fully occupied. Mr. Wirta and Mr. Hofer bought it last spring for $13.5 million. The plan is to sell the property after five or six years, letting investors cash out.

A prospectus describes the investment, costs and details about Firewheel, such as its $10.4 million interest-only mortgage at 5.7 percent. It also says that Mr. Wirta and Mr. Hofer as advisers will receive 4.3 percent in acquisition and other fees, compared with around 10 percent in commissions and fees charged by private advisers for private REITs.
Investors can buy shares in publicly traded REITs through Internet-based brokerage accounts for $10 or less per trade.

Diversifying portfolios
Maria Scott, a spokeswoman for the American Association of Individual Investors, said REITs play a role in diversifying investment portfolios.

However, consumers should understand REITs and make sure they fit into a long-term strategy, said Barbara Roper, director of investor protection for the Consumer Federation of America.

A newspaper advertisement for Nexregen intrigued Randy Hood of Bedford and Craig Capehart of North Dallas, but they asked many questions before becoming shareholders. Mr. Hood wanted to know more about a Firewheel tenant in bankruptcy before making a six-figure investment for his parents and a family trust.

He and Mr. Capehart said they'd been looking for ways to diversify into local retail property and Nexregen provided an affordable way to do that.

Mr. Capehart suggested that Nexregen use simpler language on its Web site to appeal more to small investors. He has invested about $20,000 since November.
Mr. Wirta and Mr. Hofer have taken steps to address potential investor concerns. They plan to keep at least a 10 percent equity stake in the REIT and are offering a one-year money-back guarantee.

Texas is a test. If it works well, Nexregen will add other REITs in Texas and other states, Mr. Wirta said. Nexregen Firewheel Real Estate Investment Trust is hoping to raise $2.75 million by selling shares of Firewheel Village shopping center in Garland to investors. ">Nexregen Firewheel Real Estate Investment Trust Nexregen Firewheel Real Estate Investment Trust is hoping to raise $2.75 million by selling shares of Firewheel Village shopping center in Garland to investors.