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USA Private / Non-Traded REITs: Sector Focus
Monday, 29 September 2014 03:46

Private / Non-Traded REITs: Because of the recession and the desire for steady yield, the number of publicly traded REITs rise more than 50% to 209 from 136 in 2008, and “You have everyone and their mother saying, OK, I wanna be a REIT." Private real estate sponsors are raising money hand over foot, primarily because the institutional investment community has convinced itself that the short-term volatility that necessarily accompanies liquidity equates to higher long-term risk. In other words, liquidity is a bad thing. "Logic like that would conclude that the best way to avoid unpleasant medical news is to never visit the doctor," (Green Street).

  • Non-listed REITs accounted for USD$21bn in property sales in 2013 (up 85% on 2012), and raised about USD$20bn in 2013, with a significant amount from individuals who re-invested proceeds returned to them (7 non-listed REITs returned a total of USD$16bn to investors in 2013), via “liquidity events” and an estimated 70% went back into non-listed REIT investments, with some predicting another USD$20bn worth on the horizon. Such liquidity events have traditionally been engineered to create an exit for the sponsor, not the investor, but the more recent ones reflect a greater emphasis on investor total return and a with a time-line for the return of the principal (as opposed to just straight dividend yield income). They also represent a coming-together of listed and unlisted REITs in that most occur via : -
  • 1) An IPO into the public REIT market, or

    2) A sale to a publicly traded REIT affiliate, or

    3) A sale to the (now listed) sponsor.

    Since US non-traded REITs are booked at cost value and seldom independently revalued (to market value), it was almost impossible for investors to accurately judge the real total returns achieved, so this shift to listing brings more price transparency to the sector with it.
  • Furthermore, a 2012 study by Blue Vault Partners and the University of Texas -Link- found that start-to-finish returns of a group of 17 non-traded REITS produced an internal rate of return of just above 10% (a percentage point or so below publicly traded REITS, which enjoy superior liquidity and safeguards), after deductions for:

    a) Sales Commission – 7.0%

    b) Dealer Manager Fee – 2.5%

    c) Offering Reimbursement – 2.0%

    d) Acquisition Fee – 2.0%

    e) Asset Management Fee – 0.80%

    f) Property Management Fee – From 2.0% to 5.0%

    g) Property Leasing Fee – From 2.0% to 8.0% of first year annual gross revenues

    h) Liquidity Fee – 15% (after certain requirements are met)


  • Largest liquidations:

  • Columbia Property Trust (March 2014) - USD$5.32bn - public listing

  • Cole Credit Property Trust 3 (September 2013) - USD$4.75bn - public listing

  • Piedmont Office Realty (April 2010) - USD$4.65bn - public listing

  • Retail Properties of American (June 2012) - USD$4.22bn - public listing

  • CNL Hotels & Resorts (April 2007) - USD$3.03bn - Morgan Stanley RE Inv & Man


Last Updated on Monday, 25 July 2016 11:16