Non-traded REITs (NTRs) are back—the once beleaguered sector of Private Real Estate has returned to prominence. Investment advisors are now noticing new design features which have possibly overcome once top-of-mind objections.
Non-traded REITs were introduced in the 1990s as an alternative investment strategy. Advisors could offer this investment type to clients interested in owning Private Real Estate, but perhaps lacked the information or capital to do so. The NTR offered the possibility of stronger returns than public REITS, which many believed came at the price of a liquidity premium. NTRs were also not subject to the same market volatility as public REITs—another point supporting investment into NTRs.
NTRs gained traction among broker-dealers in 2010, nearly growing into a $20 billion market a few years later.
Source: Wealthforge
And negative publicity snowballed. The SEC issued an investor bulletin the same year cautioning investors about the investment risks of Non-traded REITs. Ultimately, the final Fiduciary Rule didn’t exclude any asset classes from use in retirement accounts, but by that time, advisors were already using other investments to meet their clients’ needs.
Heightened scrutiny of the asset class ultimately associated Non-traded REITs with a reputation of high fees, poor transparency, limited redemptions, and ill-defined exit strategies.
Quickly responding to the industry's headwinds, many sponsors went to work on redesigning the Non-traded REIT structure. Soon, new products were introduced that overcame many investors’ lingering objections. New NTRs now include several features similar to publicly-traded securities, including:
Today’s NTR sector of the Private Real Estate industry is marked by explosive growth. According to investment banking firm Robert Stanger and Co, which tracks Non-traded REIT industry performance, fundraising for NAV REITs topped $12.2 billion during the first quarter of this year. Stanger predicts total fundraising of $45 billion for 2022.
The performance of the Non-traded REIT market has been impressive compared to public REITs, illustrating Private Real Estate has the potential to provide strong returns over extended periods of high market volatility. According to Stanger,
“Non-traded NAV REIT returns outpaced those of their traded counterparts with a cumulative total return of 70.1 percent over the last 60 months. The total return of this MSCI US REIT Index (a measure of performance of publicly-traded REITs index) was 58.5 percent.” - ccim.com
Stanger also points out during this year’s first-quarter market volatility, NAV REITs posted a 4.94% return while the MSCI US REIT Index fell 4.04%.
We would be honored to introduce you to the new design features of Non-traded REITs and help you explore the benefits of Private Real Estate investing. You can conveniently schedule a one-on-one meeting with me HERE.