Non-Listed REIT Investments Hit $5 Billion in 1Q14, Cap Rates Stable at 7.3%
Non-listed REITs started strong in 1Q 2014 with $5 billion in commercial real estate investments. With significant cash balances, readily available debt capital, and many non-listed REIT liquidity events expected in 2014, non-listed REITs are poised for another strong year of acquisitions that should exceed their record $24 billion acquired in 2013. Non-listed REITs continue to establish their presence as significant investors in the commercial real estate market.
From a commercial real estate sector standpoint, non-listed REITs had the strongest focus on the office and retail sectors with $1.7 billion and $1.6 billion invested respectively. The largest office investors were Hines Global REIT with $373 million in office acquisitions and Corporate Property Associates 18 Global with $252 million in office acquisitions. American Realty Capital Trust V and Phillips Edison-ARC Shopping Center REIT were the largest retail investors with $850 million and $283 million respectively.
In 1Q14, non-listed REIT cap rates decreased to 7.26% from their previous low of 7.33% in 2013. Since their peak in 2009, non-listed REIT cap rates have declined by 19%, which reflects the rising commercial real estate prices over the last few years. Commercial real estate pricing markets are demand driven, and low interest rates on long-term financing are fueling the growing demand for core commercial real estate and its high leveraged equity yields.
Non-listed REIT cap rates vary significantly by commercial real estate sector. In 1Q14, the industrial and medical office sectors had the highest cap rates of 8.46% and 8.11% respectively. These high cap rates reflect higher market, tenant, and leasing risks. Non-listed REIT office investments had a moderate 7.01% cap rate, while non-listed REIT retail investments had a low 6.29% cap rate. Non-listed REITs also continue to obtain inexpensive long-term financing to generate a high leveraged equity yields.
Article by Michael Stubben, President of MTS Research Advisors
MTS Research Advisors is a provider of data and analytics for non-traded REITs and BDCs.
