Non-traded REITs are making a comeback—that was the message that came across at the Non-Traded REIT & Retail Alternative Investment Symposium that took place this week in New York City. Fundraising has increased for the asset class, and new players have entered the space, looking to grow and diversify. Here are some highlights from the first day of the conference.
- Delaware statutory trust (DST) structures are “hot.” Kevin Gannon, managing director of investment banking firm Robert. A. Stanger & Co., said there is a lot of money being raised in DSTs, with roughly $2.5 billion expected this year, and there are big players in the space. Much of these are centered around multifamily assets, which serve their purposes for 1031 exchanges. “I’m told if you get the product out there, it will sell,” Gannon noted.
- Non-traded REIT performance continues to improve. For the 12 months ended in March, total returns for traditional non-traded REITs, on more than $47 billion of equity, were 6.22 percent, Gannon said. At the six-month mark, they were 3.06 percent. “That’s pretty good return in the real estate sector compared to the publicly traded REITs,” he added. Fundraising levels are also improving: after peaking at around $19.6 billion in 2013 and tapering off in the years after to around $4 billion annually, this year fundraising for non-traded REITs is anticipated to come in at around $5.1 billion, marking three quarters of growth in a row, Gannon said. “They’re starting to ramp up. They’re starting to come back.
- There will be more opportunities to take public REITs private. In fact, it’s a trend that’s already underway, according to Gannon. Many public REITs are trading at “substantially less” than their net asset values, suggesting that the private market has an opportunity to step in, Gannon said. “The pricing of it suggests it might happen.”
- The sector’s long-term outlook is good. According to Gannon, the long-term forecast for the sector is positive—and that includes changes underway, from NAV rates to increasing redemptions. “My long-term outlook on this space is that it’s good and that change is good. Change is always good,” he said. “When we don’t have change, we stagnate, we die.”
- New entrants see the non-traded REIT sector as a place to expand. Manish Desai, president of Oaktree Real Estate Income Trust, Inc., said Oaktree views non-traded REITs as a “natural extension” of its offerings, as new regulatory changes made the market more transparent. “This was a great area for us to expand our income business,” he said. A few years ago, Oaktree saw the non-traded REIT sector as an attractive place to buy stable real estate—the firm focuses on real estate in non-gateway, but growing markets—and finance it with long-term debt that can provide an income stream to its investors, Desai said.