For nearly two decades, Merrie Frankel has been a familiar face around the REIT industry as a REIT analyst with Moody’s Investors Service. She decided in the fall that she was ready for a change.
In February, she announced the formation of Minerva Realty Consultants, LLC in affiliation with RCLCO, a real estate advisory firm with offices in Washington, D.C., and Los Angeles. The new venture provides credit rating and capital structure analysis to REITs and real estate companies. The firm’s clientele includes listed REITs and private real estate companies seeking strategic analysis, companies considering going public and companies that are working through the ratings process.
When Frankel spoke with REIT magazine in the spring of 2017, she talked about why she made the move into consulting and reflected on some of the challenges faced by the ratings agencies following the financial crisis of the late 2000s.
REIT: So what prompted you to want to make the move into consulting?
FRANKEL: I wanted to create a firm that integrated my knowledge of REITs, the rating process, investment banking, tax and portfolio management while providing a unique and value-added service. Other than a few investment banks with in-house rating advisors, no one is providing independent rating advisory services in the U.S.
Earlier in my career, I was a real estate consultant at Ernst & Young, so I understood that business landscape. I contacted RCLCO with the idea so that I could provide them with REIT expertise and they offer global real estate consultant platform resources.
As an aside, I wanted a fun name for a woman-owned firm. Thus was born Minerva—the Roman goddess of wisdom.
REIT: Tell us a little bit about what you’re doing at Minerva.
FRANKEL: Minerva is unique in providing independent consulting services to assist companies pursuing credit ratings and capital structure analysis for REITs contemplating accessing the public markets or ratings. Minerva’s disciplined process will enable private companies to explore IPOs by mapping out the optimal approach to going public and guide listed and non-listed real estate firms through the rating process.
REIT: You mentioned Minerva’s “disciplined process.” What does that consist of?
"The methodological and consistent manner in which REITs have continued to perform from the recession through today is notable." - Merrie Frankel
FRANKEL: Looking strategically at the company’s financials, market position, and resources to assess their ratings potential, whether public or private and help them navigate the process.
REIT: How does RCLCO factor into what you’re doing?
FRANKEL: While developing Minerva’s goals, I decided that I wanted to have access to a larger firm’s resources for certain assignments. Through Minerva’s affiliation with RCLCO and their reputation for excellence in strategic real estate intelligence, we can completely service clients by providing them with a single source for strategic advice.
They have great depth and breadth of people to perform market and portfolio analysis. Affiliating just made a lot of sense.
REIT: What are some of the main questions that you’re fielding from clients and prospective REIT management teams?
FRANKEL: The reception to Minerva has been wonderful. From basic questions about REIT structuring and the rating process to more intricate inquiries about the various sectors. I want to guide companies through the ratings process so that it’s easier for potential public and private REITs to navigate and understand.
REIT: Looking at how real estate companies in the U.S. are accessing the capital markets, are there any major developments or trends that are of interest to you?
FRANKEL: Some of the newer trends that I’m watching include more development and the growth of specialty REITs, such as those involved in data centers and technology infrastructure. There is some uncertainty regarding how tax reform will affect REITs and how much capital will flow into REITs due to the creation of the new GICS [Global Industry Classification Standard] real estate class.
The methodical and consistent manner in which REITs have continued to perform from the recession through today is notable. Although headline risk continues for some sectors, operating fundamentals are solid. REITs have maintained their liquidity by issuing more unsecured debt than ever in 2016 ($37 billion), accessing the equity markets, and maintaining strong portfolios despite store closures and bankruptcies.
REIT: As someone who was directly involved with the ratings process, are there any particular challenges posed in rating real estate companies versus other industries? And, specifically, what about REITs, given the unique nature of their business model?
FRANKEL: The challenges to REITs lie in the consistent need for liquidity since they must pay out 90 percent of their taxable income in dividends and maintain solid portfolios despite tenant issues, but diversification remedies this.
If a large percentage of a REIT’s properties are occupied by one tenant, that might create some issues. However, if the REIT is diversified by tenant and geography, that can alleviate some challenges.
REIT: You were with Moody’s for nearly two decades before coming to Minerva, so you have a sense for what it was like during the financial crisis. The reputations of the ratings agencies clearly took a hit in the aftermath of the meltdown in the credit markets. Do you think they’ve recovered?
FRANKEL: The ratings agencies have recovered to a great extent due to more transparency with clients and extensive methodologies for each sector that are shared with their clients. Companies are provided with a better road map regarding the agencies’ criteria to rate each sector, which resulted from the recession and the feedback from the market.
At Moody’s now, there are approximately 250 detailed methodologies for the different sectors – real estate is just one. That, in turn, created more transparency.
Merrie Frankel is the president of Minerva Realty Consultants, LLC, a REIT and credit rating advisory firm. Previously, she was a vice president and senior credit officer in the commercial real estate finance group at Moody’s Investors Service from 1998 until August 2016, where she oversaw a ratings portfolio of REITs and real estate operating companies in the U.S. and Canada. Prior to joining Moody’s, Frankel was a senior vice president and director of portfolio management for the Argo Funds and has also worked for Cushman & Wakefield, JP Morgan, and Salomon Brothers. She holds J.D. and M.B.A. degrees from Hofstra University and a B.A. in English from the University of Pennsylvania.