Nontraded REITS should be a nonstarter for clients: Green Street

Research firm says publicly traded trusts are the superior investment; ‘egregious' upfront costs

Mar 29, 2012 @ 4:13 pm

By Dan Jamieson

Forget the new breed of nontraded REITs, says Green Street Advisors Inc. Investors are far more likely to be better off with publicly traded REITs, the research firm said in a report released Wednesday.

Regulatory scrutiny has forced sponsors of nontraded REITs to address issues surrounding valuations, illiquidity, high fees, dividend payouts and conflicts, the report said.

One crucial change: the introduction of daily net-asset-value estimates by several sponsors, as better pricing transparency might end the illusion of share-price stability, Green Street said.

“Since the shares don't trade, the share price investors see on their statements every quarter doesn't fluctuate,” the company said. That stability has been “one of most bizarre ‘advantages' touted by nontraded-REIT sponsors.”

In addition, “egregious” upfront costs of 7% to 10% on nontraded REITs should come down to 1% to 3%, the report said, and management fees of around 1% will drop, as well.

Questionable dividend yields of 5% to 10% are likely to fall closer to the 3.3% yield for publicly traded REITs.

Green Street said nontraded REITs have gotten something right, however: low leverage.

“Very few of them were forced into [taking on] expensive debt [or] selling properties on the cheap [or] issuing equity on an NAV-dilutive basis” during the financial crisis, the research firm said.

Nevertheless, “for most investors under most circumstances, publicly traded REITs will represent a superior investment vehicle, compared to even the ‘new breed' nontraded REITs,” the report said.

Green Street counts approximately 70 public nontraded REITs that own $85 billion in assets.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

How advisers can better communicate the risks and rewards of investing in emerging markets

Senior columnist John Waggoner discusses how financial advisers can help clients better understand the advantages of having exposure to emerging markets and the increased volatility that often comes along with investing in them.

Latest news & opinion

Cetera broker-dealers to pay back $3.3 million to clients overcharged for mutual funds

Over an eight-year period, the B-Ds failed to properly supervise sales charge waivers to clients in retirement plans and charitable organizations.

Fiduciary advocates press CFP Board for specifics on standards changes

Meanwhile, few brokerages and their trade associations, which blasted the DOL's fiduciary rule in comment letters, are responding to the CFP Board's proposal.

Big gains attract new money to emerging markets, but should investors stay?

An estimated $6.7 billion has flowed into emerging-market stock funds and ETFs so far this year, according to Morningstar.

Attorney blasts Finra after regulator loses insider trading case

Lawyer says it was 'slimy' of Finra to publicize the case while it was still being litigated.

Will Jeffrey Gundlach's Trump-like approach on Twitter work in financial services?

The DoubleLine CEO's attacks on Wall Street Journal reporters is igniting a discussion on what's fair game on social media.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print