Non-Traded REIT Redemptions Continue to Rise as Equity Falters

Non-Traded REIT Redemptions Continue to Rise as Equity Falters

According to an article in the DI Wire, non-traded real estate investment trust fundraising is down. It has 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 Summit Investment Research, a research and due diligence firm. REITs have raised nearly $2.2 billion so far this year.

Non-traded REIT capital raising activity exceeded $2.5 billion per quarter, during its peak in 2015.   According to Summit there have been several factors affecting their numbers since then. Non-traded REITs have 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.

Additionally, the Department of Labor’s fiduciary rule and FINRA 15-02, and high market prices could continue to be an issue for non-traded REITs through the end of the year, according to Summit’s report.

During the second quarter, reinvested distributions continued to provide significant capital for non-traded REITs, with $362 million raised through distribution reinvestment programs. According to Summit, this trend is expected to continue. Reinvested distributions 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.

“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.

According to the study, 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.

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This information, which is publicly available, has been provided by The White Law Group.

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