Non-Traded REIT Equity Continues to Struggle, Redemptions Continue to Rise
Non-traded real estate investment trust fundraising decreased to $1.02 billion in the second quarter of 2017, down from nearly $1.15 billion last quarter, according to the most recent Non-Listed REIT Equity Raise report issued by research and due diligence firm Summit Investment Research. So far in 2017, REITs have raised nearly $2.2 billion.
During its 2015 peak, non-traded REIT capital raising activity exceeded $2.5 billion per quarter, but experienced a series of setbacks, including former industry leader AR Global and its related entities’ ceasing fundraising and cancelling their offerings following a number of scandals, regulatory changes like the Department of Labor’s fiduciary rule and FINRA 15-02, and high market prices. Summit noted that these factors will continue to present “significant headwinds” for non-traded REITs for the remainder of the year.
Reinvested distributions continued to provide significant capital for non-traded REITs during the second quarter, with $362 million raised through distribution reinvestment programs. This trend is expected to continue, according to Summit. This is slightly higher than historical reinvested distributions, which topped $346 million last quarter and $345 million year-over-year.
Share redemptions have remained high rounding out the second quarter at $339 million, a 26 percent increase from the same period last year when $269 million in shares were redeemed.
Over the last four quarters, non-traded REITs redeemed a record $1.4 billion in equity. However, there was a slight downward trend in last three quarters, with the first quarter of 2017 posting redemptions of $368 million and peaking at a whopping $508 million in the fourth quarter of 2016.
Summit noted that most non-traded REITs cap annual share redemptions at 5 percent of outstanding shares, and some closed REITs have stopped offering share redemptions or are hitting their quarterly share redemption limits.
“The same factors that will create headwinds for non-listed REIT fundraising will continue to drive higher share redemptions in 2017 for closed non-listed REITs with open share redemption programs,” said Summit.
Summit Investment Research was founded by Michael Stubben in April 2016 and covers non-traded REITs, business development companies, interval funds, and listed REITs (that acquired non-traded REITs or were once non-traded). The company’s research can be utilized by a variety of industry clients including financial advisors, registered investment advisors, broker-dealers, sponsors, service providers like law firms, due diligence firms, industry organizations, and news organizations, and institutions.