REITS continue to be hot as first quarter flows top $4B

Sputtering equity market, lackluster bond returns continue to drive investors

Apr 15, 2014 @ 1:47 pm

By Carl O'Donnell

As the equities market sputters and fixed income continues to eke out mediocre yields, investors are increasingly finding an alternative in nontraded real estate investment trusts.

More than $4 billion flowed into nontraded REITs in the three-month period ended March 31, according to data from Robert A. Stanger and Co. Inc. and the Investment Program Association. That's a pickup from the first quarter of 2013, which saw inflows of about $3.9 billion. But overall, 2013 was a banner year for nontraded REITs, with total flows reaching $19.6 billion, according to the IPA. In 2012, nontraded REITS brought in $10.3 billion in retail investor capital flows.

“This is a strong indication that investors remain bullish on these products,” said Kevin Hogan, president and CEO of the IPA.

(More: Nontraded REITs set up for strong year but speed bumps loom)

A number of factors are driving demand, including the sideways equities market, Mr. Hogan said. Traditionally, nontraded REITs offer relatively low correlations to stocks, making the assets an appealing diversifier.

Weak yields in the bond market have also been a driver of nontraded REIT inflows. In 2013, the average annual distribution of nontraded REITs was 7.26%, better than on most bonds, according to Blue Vault Partners, which researches nontraded REITs.

“Real estate does come with some risks, so the yields need to be attractive,” Mr. Hogan said.

Meanwhile, the gradual uptick in the U.S. economy is boosting demand for office space and reinflating real estate values, a boon for many REIT issuers, Mr. Hogan said.

“Interest rates are low, and occupancy rates are high. This is a perfect storm for REITs,” said Mr. Hogan, who expects the pace of inflows to remain strong through 2014.

There are, however, reasons that nontraded REITs may not be an ideal choice for investors. The products typically involve upfront fees as high as 10% in some cases, and the typical nontraded REIT requires an investor to tie up his or her assets for between five and seven years, he said.

Those who want exposure to real estate while enjoying greater liquidity could consider publicly traded REITs, which can be bought and sold like stocks.

“It's important for investors to realize that a non-listed REIT investment requires a longer time horizon,” Mr. Hogan said.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

The power of data

Your clients have financial news and data at their fingertips, but donít know how to interpret it. Katy Gibson of Envestnet|Yodlee and Blake Kannady of Envestnet discuss the power of leveraging aggregated data.

Recommended Video

Path to growth

Latest news & opinion

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

Relying on trainees, Merrill Lynch boosts adviser headcount in 2017

Questions remain about long-term effectiveness of wirehouse's move away from recruiting experienced brokers.

Supreme Court review of SEC judges could roil pending cases

But long-term, the agency may get around questions of constitutionality by changing the way it brings on administrative law judges.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print