Bluerock interval fund could trade at 'substantial discount' after it lists, company says

The potential listing of a large nontraded interval fund - the $3.7 billion Bluerock Total Income + Real Estate Fund - could get off to a rocky start, according to the company. The company said in a filing Monday with the Securities and Exchange Commission (SEC) it was expecting the fund to trade at a “substantial discount” to its current net asset value.

At the end of May, the Bluerock Total Income + Real Estate Fund said the net asset value, or NAV, of its Class A and Class C shares, respectively, was $25.74 and $23.71. The funds’ other share classes had NAVs in a similar range.

In its proxy statement filing with the SEC, the company gave no percentage range to illustrate how much lower than its current NAV it might trade.

One industry observer said, based on past listings of nontraded interval funds, that discount could be as much as 25% to 30% of the fund’s current NAV.

“It sounds like the Bluerock fund knows it’s going to trade low and are trying to get in front of that for some protections from shareholder actions,” said John Cox, CEO of Cox Capital Partners, which invests in non-traded alternatives in the secondary market via a proprietary fund. “Id’ be surprised if this Bluerock doesn’t trade at a 30% discount.”  

“Almost all the fund’s assets are invested in private real estate funds, and those may be valued at NAVs of 70% to 75%,” he said. 

Financial advisors often sell clients interval real estate funds or nontraded real estate investment trusts in order to diversify portfolios and deliver steady yields. Real estate funds of all stripes, however, were hit by rising interest rates since the start of 2023. Higher interest rates hurt real estate investors because the cost of capital rises.

A spokesperson for Bluerock did not return a call Tuesday morning to comment.

Interval funds have limited liquidity and typically buy back up to 5% of clients’ shares per quarter.

Investors in the Bluerock Total Income + Real Estate Fund should brace themselves, according to the company.

“This discount to NAV could be substantial, especially as some shareholders take advantage of newly available secondary market liquidity,” according to the fund’s proxy filing. “As such, we anticipate that at listing, the fund’s shares will trade as a substantial discount, and that this discount will likely be more pronounced for a period of time following the listing.”

“If a fund is trading at a discount, shareholders will receive less than the NAV per share of the fund if they sell their shares on the exchange,” according to the filing.

The Bluerock Total Income+ Real Estate Fund on July 3 said in a press release it was seeking shareholder approval for the liquidity event, which would convert the fund from a closed-end interval fund to a listed closed-end fund, traded on the New York Stock Exchange. The shareholder vote is scheduled for September 3.

A steady number of investors have looked to sell their shares back to the Bluerock interval fund, recently, according to the company. After the fund lists its shares it may lower costs and boosts its yield to investors, according to the company.

The alternative investment industry, which has seen spectacular growth the past decade, is riddled with examples of illiquid real estate funds limping to the finish line if they seek to begin daily trading on the NYSE or NASDAQ. Such a move allows investors to cash out shares, but the risk is not knowing at what price.