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Interval Funds Continue to Attract Investors, But Distribution Coverage Shrinks

Real estate interval funds have continued to experience strong growth in their equity capital raising efforts, according to Summit Investment Research’s Real Estate Interval Fund Market Snapshot. The snapshot is based on the most recent financial reports filed as of September 30th, 2016.

Interval funds have increased their capital raise by $1 billion in the last six months and $2 billion in the last year. During the six months ended September 30th, interval funds raised a total of approximately $3.2 billion, compared to nearly $2.2 billion during the six months ended March 31, 2016. During the same period last year, interval funds raised a total of $1.2 billion.

Three interval funds, Griffin Institutional Access Real Estate Fund, Versus Capital Multi-Manager Real Estate, and Total Income + Real Estate Fund, dominate the equity capital raise for real estate interval funds with a 93 percent market share for the twelve months ended September 30th.

Griffin Institutional Access, the largest real estate interval fund, topped the list with total net assets of approximately $1.2 billion. Versus Capital Multi-Manager fund came in a close second with $1 billion in assets, followed by Bluerock’s Total Income+ with $491.4 million in total assets. Multi-Strategy Growth and Income Fund, Vertical Capital Income Fund, and Resource Real Estate Diversified Income Fund posted total net assets of $491.4 million, $196.5 million, and $178.6 million, respectively.

Real estate interval funds reported average annual total returns of 7.9 percent for no load class A shares. According to Summit, total returns vary by real estate fund from a low of 1.2 percent and high of 11.1 percent for no load class A shares. For class A share with a load, total returns averaged just 1.7 percent, while no load class I shares posted an 8.3 percent average return.

Average distribution rates have inched up steadily over the last two years. Interval funds posted 5.1 percent average distribution rates, as of September 30th, a 4 percent increase from last year’s average of 4.9 percent. During the same reporting period in 2014, interval funds reported distribution rates of 4.7 percent.

Distribution coverage, an ongoing issue with interval funds, has been steadily declining since fiscal year end 2014. For the current reporting periods, real estate interval funds had an average distribution coverage of just 29 percent, nearly half of the 56 percent distribution coverage in 2015. In 2014, distribution coverage averaged 64 percent.

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