Non-Traded REIT Sales Drop 5 Percent in Third Quarter
Sales of non-traded REITs declined 5.2 percent in the third quarter of 2016 to $1.01 billion from $1.07 billion last quarter, according to the Non-Listed REIT Market Snapshot issued by Summit Investment Research. This brings the year-to-date total of REIT fundraising in 2016 to just $3.5 billion, which represents the lowest annual fundraising pace in 12 years, on an annualized basis.
The peak fundraising years for non-traded REITs occurred in 2013 and 2014 when sales topped $20 billion and $15.7 billion, respectively. The record fundraising was due to favorable public market pricing that facilitated many non-traded REIT liquidations, Summit noted, but sales dropped precipitously following the abrupt exit of the largest REIT sponsor, American Realty Capital – now known as AR Global, and regulatory uncertainty stemming from FINRA’s 15-02 and the new fiduciary standard.
Cap rates have been steadily declining over the last five years, but ticked up slightly in the third quarter. Cap rates reached 6.1 percent so far in 2016, roughly 5 percent higher than last quarter’s year-to-date rate of 5.8 percent. The third quarter 2016 year-to-date cap rate is a 28 percent decrease from 2010.
Cap rate compression points to increasing commercial real estate prices and is driven by interest rates on new debt. So far in 2016, average interest rates on new permanent debt increased to 3.7 percent, which ended a five-year decline.
Market occupancies increased over the last five years with the market expansion. Occupancies for non-traded REITs remained stable at 94 percent in the third quarter, a slight increase compared to last year’s 93 percent occupancy rate. The average lease term for retail, office, and industrial properties was 8 years.
Three non-traded REITs broke the $100 million capital raise mark in the second quarter, while others struggled to reach triple digits. The top selling REIT for the quarter was Jones Lang LaSalle Income Property Trust with $161 million in equity raised. The second spot went to Griffin Capital Essential Asset REIT II with $110 million in sales, and Industrial Property Trust came in third with $102 million. Cole Office and Industrial REIT took fourth with $81 million raised, while Carter Validus Mission Critical REIT II came in fifth with $71 million.
