The direct investment industry, fresh off a record capital raising year, rides high into 2014 with no signs of slowing down. High net-worth investors expect to include non-traded REITs and BDCs in their future portfolios according to a survey conducted by The Investment Program Association (IPA).
The survey, performed by Ebiquity on behalf of the IPA, polled 500 high net-worth investors chosen at random with annual household incomes of $150,000 or more and a minimum of $250,000 in investable assets.
Investor’s awareness of non-traded REITs grew to 35% from 29%. The IPA conducted a similar poll in March of 2013 right as the non-traded REIT industry began experiencing one liquidity event after another. All told, 2013 saw eight liquidity events resulting in an estimated $16 billion returned to investors, according to Robert A. Stanger & Co., LLC. Liquidity may happen as an outcome of exchange listings, mergers, or portfolio sales.
Future Investment Plans of High Net-Worth Investors
Of the respondents who are familiar with non-traded REITs (35% of 500), 45% of these HNWs plan to include the investment type in their future portfolio.
Business development companies (BDCs) will also benefit from the future allocation plans of this group. Over 25% of those familiar with the investment type (28% of 500) will include BDCs in future selections.
“In this low-income environment, investors are looking for income-generating products and non-correlated diversification,” said Kevin M. Hogan, President and CEO of the IPA, in a statement.
2013 proved this to be true. Capital raised by non-traded REITs exceeded $19 billion and BDCs took in just shy of $5 billion.
Hogan added, “These investment vehicles can provide investors with non-correlated yield and significant total return over a multi-year investment horizon.
Investors in non-traded REITs and BDCs understand these investments are meant to be held from five to seven years or more, however, despite the yields of 4% to 6%, it’s the liquidity events that generate assurance. $16 billion in returned equity during 2013 undoubtedly provided investor’s confidence in manager’s abilities to deliver.
This year, the non-traded REIT industry has witnessed two such events, both by merger. Inland Diversified was acquired by Kite Realty Group, a publicly traded REIT and W.P. Carey acquired its Corporate Property Associates 16.
In the past week, two sponsors have announced their intent to list on an exchange.
FS Investment Corporation (FSIC), a non-traded BDC sponsored by Franklin Square Capital Partners, announced it has filed to list on the New York Stock Exchange under the symbol FSIC. The BDC raised over $2.8 billion before closing in May of 2012.
After a successful initial public offering of $1.5 billion, American Realty Capital New York Recovery REIT made known its intent to file to list on the NYSE sometime in the second quarter.
Confidence in Real Estate
High net-worth investors remain confident in commercial real estate; with 83% of those polled believing the sector will outperform or match the equity market’s return over the next five years.