Are nontraded REIT sales back from the dead?

Sales could hit $5.1 billion this year, up from $4.2 billion in 2017, according to Robert A. Stanger & Co. Inc.

Jul 12, 2018 @ 4:37 pm

By Bruce Kelly

Signs of life are creeping back into the moribund market for nontraded real estate investment trusts.

While sales are down 18.5% the first half of this year when compared to 2017, fundraising has increased for three consecutive quarters, according to investment bank Robert A. Stanger & Co. Inc.

Stanger estimates nontraded REIT sales this year could reach $5.1 billion. That's would compare to $4.2 billion last year and $4.5 billion in 2016.

A combination of new managers entering the market after the recent success of the Blackstone Group's nontraded REIT with old nontraded REITs moving towards liquidity events like mergers and listings should help boost sales in the second half of 2018 and into next year, said Kevin Gannon, president and managing director at Stanger, an investment bank that works with nontraded REITs and their managers.

Mr. Gannon said he expects fund raising for nontraded REITs "to accelerate" as newcomers like Starwood Capital Group, Nuveen and Oaktree Capital Management begin selling products during the second half of the year.

He is also sanguine about $10 billion of mergers, listings and liquidations, along $1.5 billion in share redemptions from investors over the past year. "These actions speak volumes about nontraded REITs meeting the liquidity expectations of investors," he said.

Mr. Gannon's anticipation of better days ahead for nontraded REITs, sold almost exclusively by independent broker-dealers, comes after a bruising five years during which sales have gone straight down.

The Department of Labor's now-defunct fiduciary rule, and new securities industry account statement rules for greater clarity in the prices of products, two years ago forced nontraded REITs —marketed as higher-yielding investments — to sell different share classes and sliced their commissions. The industry's largest sponsor, American Realty Capital, revealed an accounting scandal in 2014 at a related company and a year later stopped selling new REITs.

Since the top of the market in 2013, when ARC was the dominant nontraded REIT manager and brokers sold $19.6 billion in REITs, sales of the product have collapsed.

Nontraded REIT sales dropped $9.6 billion, or 46.4%, between 2013 and 2015, according to Stanger. Some in the industry have pointed to the high price of commercial real estate as dampening REIT sales. Others have said the new industry pricing rules and the DOL fiduciary rule, which tamped down incentives like high commissions, as the reasons behind the fall off in REIT sales.


What do you think?

View comments

Recommended for you

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Featured video


How InvestmentNews picks its Women to Watch winners

The process is laborious and exacting, but well worth it. The end result each year is an impressive group of women in the advice industry from whom others can draw inspiration.

Latest news & opinion

Some good news about female recruitment in financial advice

Each of four core advisory positions tracked in InvestmentNews' benchmarking study has seen an uptick in women entrants.

10 ETFs that are up more than 35% this year

Amid the stock market carnage, there are still some funds posting big gains.

10 biggest HSA providers rated

Morningstar rated the largest plan providers as investment and spending vehicles.

Morningstar: DOL fiduciary rule reduces inflows to mutual funds with high loads

With the measure's demise, will the SEC's advice reform sustain the momentum?

6 tax strategies for year-end planning

How to help clients maximize their wealth using specific tax strategies before the end of the year.


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print