Despite recent roadblocks encountered by investors looking to cash in shares of certain giant nontraded real estate investment trusts, the managers of illiquid REITs have sufficient reserves to meet client demands to redeem shares at the moment, according to a report by Robert A. Stanger & Co. Inc., an investment bank that tracks sales of illiquid alternative investments.
"The industry is well positioned to meet redemptions up to the 5% quarterly cap with sufficient liquidity sleeves on the balance sheets to fund redemptions without tapping real estate asset sales for 2022 or 2023,” Kevin Gannon, Stanger's chairman and CEO, wrote in a research note Monday.
The question about REIT redemptions has been hanging over the market for the past few weeks. Some newer nontraded REITs have a quarterly limit on redemptions of 5%, or 20% per year.
On Dec. 1, the $70 billion Blackstone Real Estate Income Inc. trust told investors that redemptions had exceeded the monthly limit of 2% of its net asset value in October and 5% for the entire quarter, which pushed the company to prorate, or limit and portion, investor demands. That means some investors who wanted to get their money out of the fund were turned away — at least for now.
Days later, a published report indicated that the $14.6 billion Starwood Real Estate Income Trust Inc. was also limiting client withdrawals. In the past, some nontraded REITs have had issues with shutting off redemptions, unclear valuations, high fees, a lack of liquidity and being able to generate enough revenue to cover their monthly and quarterly payments to investors, called distributions.
Rising interest rates and fears of a recession are hanging over the commercial real estate market, pushing some investors to cash out of the REITs.
Net asset value, or NAV, REITs, including Blackstone REIT and Starwood REIT, had an increase in investor redemptions in the third quarter, reaching $3.6 billion, the Stanger report said, estimating that redemptions for the fourth quarter of 2022 for all NAV REITs will remain high at about $4.5 billion.
Meanwhile, 2022 has been another excellent year for alternative investment sales, according to Stanger.
"Year-to-date 2022 alternative investment fundraising totaled $98.7 billion through November, a 38% increase over the same period of 2021, led by nontraded REITs at $32.1 billion, up 8%, nontraded business development companies BDCs at $23 billion, up 88%, interval funds at $22.3 billion, up 45%, and Delaware Statutory Trusts at $8.6 billion, up 41%," Stanger reported.
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