The $4.3 billion Bluerock Total Income + Real Estate Fund will begin trading next Tuesday on the NYSE, but questions remain about fund’s net asset value – NAV – when it goes live on the Big Board and how significant a haircut clients and their financial advisors will take if they choose to sell the fund.
Investors in the Bluerock Total Income + Real Estate Fund should be ready for at least a slight hit once the company begins trading on December 16, according to a filing Monday with the Securities and Exchange Commission.
According to the company, the real estate fund had an NAV Monday of $25.12 per share.
“In consideration of pent-up liquidity demand from existing shareholders, we anticipate that the fund will likely trade at an initial discount to its NAV upon listing,” according to the company.
“However, while listed closed-end funds often trade below their NAVs in the period after listing, larger closed-end funds and larger real estate closed-end funds similar to TI+ typically trade near or above their NAVs as a result of their ability to attract both individual and institutional buyers,” according to the filing.
Over the summer, the compay said it was expecting the fund to trade at a “substantial discount” to its NAV.
Launched in 2012 as an Interval fund, the fund is converting to a closed-end fund once its lists next week. The former structure has limited liquidity – or opportunities for investors to sell shares – while the latter offers daily liquidity.
According to the Bluerock filing, all listed closed-end funds trade 4.8% below, meaning a discount, to their NAVs. Meanwhile large closed-end funds and large real estate closed end funds trade at a slight premium, according to the filing.
“If the fund’s underlying assets are already trading at a discount, and it’s a closed-end fund, which trades at a discount, with investors looking to exit, my conclusion would be that anywhere close to a 4% discount to NAV is optimistic,” said John Cox, CEO of Cox Capital Partners, which invests in non-traded alternatives in the secondary market via a proprietary fund.
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.
Illiquid or semi-liquid funds sold by financial advisors at times raise concerns for clients when they attempt to list and provide liquidity to investors.
Just last month, the FS Specialty Lending Fund, with $1.9 billion in assets, published on November 4 an NAV of $18.60 per share. After months of preparation, the company began trading 10 days later on the NYSE at $14 per share, a discount to NAV of 24.7%.
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