As rising interest rates and workers reluctant to return to the office weigh on the commercial real estate market, nontraded real estate investment trusts, which had seen record sales over the past couple of years, are off to a torpid start in 2023, with sales down 56.4% over the first four months of this year compared to the same period in 2022.
According to investment bank Robert A. Stanger & Co. Inc., nontraded REIT sales totaled $6.8 billion through the end of April, which compares to the $15.6 billion in nontraded REIT sales over the first four months of 2022.
For the month of April, nontraded REITs saw $485 million of sales, called "fundraising" by Stanger. That was the lowest level since August 2020, in the first year of the Covid-19 pandemic.
Since 2017. brokers and financial advisors have sold tens of billions of dollars' worth of a new generation of nontraded REITs, many designed as net asset value REITs, meaning that they’re structured to generate long-term returns, provide greater transparency and offer more liquidity than past generations of the product. Investors buy the product for steady returns, often in place of a fixed-income investment.
But some commercial real estate sectors, particularly office buildings, have turned sour on investors. The Dow Jones U.S. Real Estate Index closed at 321.88 Monday, down 13.9% from 373.71 a year earlier.
And it isn't just sales nontraded REITs that have fared poorly so far this year, according to Stanger, but sales of all alternative assets. Total sales of alternatives over the first four months of the year, including nontraded business development companies and other illiquid investments, were $20.8 billion, compared to almost $43 billion in the same period in 2022, for a decline of 51.6%.
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