Non-traded REITS will waive internalization fees

Two real estate investment trust companies will waive their “internalization fees,” potentially sparking a trend in the REIT marketplace that would bode well for investors. Grubb & Ellis Equity Advisors, the primary real estate investment and asset management subsidiary for Grubb & Ellis Co., and American Realty Capital Advisors LLC each said they would no longer charge shareholders an internalization fee — a fee that is commonly applied once a non-traded REIT takes over its own management and begins trading on an exchange. The fee, which is traditionally paid out of shareholder assets to the REIT sponsor firm, is based on a multiple of the REIT’s management and performance fees, and it can be significant. Between 2000 and 2007, seven non-traded REITs paid internalization fees to sponsor firms that ranged from $68 million to $375 million.