Changing direction, FS Investments launching a nontraded REIT

FS Investments launched a $2.5 billion commercial mortgage nontraded REIT Monday, a first for the company better known for sponsoring non-traded business development companies. The new company, FS Credit Real Estate Income Trust Inc., has hired Rialto Capital Management as the REIT's sub-adviser. The REIT will have its net asset value calculated daily and offer four share classes. Its “T” share, for client accounts that pay commissions, will initially cost $25 per share. With $18.7 billion in assets under management, FS Investments appears to be going head to head with its longtime partner, GSO Blackstone, in launching the new REIT. Last summer, Blackstone announced it was launching a daily NAV, nontraded REIT, the Blackstone Real Estate Income Trust Inc., to sell through wirehouses and independent broker-dealers. GSO Blackstone has been the sub-adviser on several nontraded BDCs under the brand of FS Investments, which was formerly called Franklin Square. GSO is Blackstone's credit-oriented alternative asset manager. For years, nontraded REITs have drawn criticism for their high cost; sponsors of nontraded REITs have typically charged the maximum — 10% — in commissions and dealer manager fees allowed under securities industry rules. That appears to be changing. In the wake of recent industry rules that require the pricing of illiquid investments like nontraded REITs to be more transparent, as well as the Department of Labor's fiduciary rule for retirement accounts, some sponsors have made moves to reduce such fees. And the FS Credit Real Estate Income Trust looks to be priced competitively. If an investor purchases $10,000 of class T shares, he will pay fees and commissions of 7.25%, according to the SEC filling. That includes $313 in upfront selling commissions; $131 of upfront dealer manager fees; and a $100 annual stockholder servicing fees for up to three years and no more than $281. “We are hearing noise that the fees are coming down and it's becoming competitive,” said Kevin Gannon, president and managing director of Robert A. Stanger & Co. Inc. “For 30 years, no one really talked about it. Bringing the fee structure into the dialogue is always good.” FS Investments has recently registered a handful of other funds, including the FS Energy Total Return Fund and the FS Diversified Income Fund. (More: Coming off a disastrous 2016, sales of nontraded REITs could bounce back in 2017)