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Non-Traded REIT Equity Declines Sharply in Q2

Part 1 of 3

Sales by non-traded REITs during 2Q 2015 totaled an estimated $2.56 billion, down from the $3.28 billion recorded in 1Q 2015, and below the average quarterly totals for 2014 of $3.95 billion. That is according to a recent second quarter review from Blue Vault.

The Non-traded REIT Industry Review, which is published by Blue Vault Partners LLC, is published on a quarterly basis each year and offered to the general public on a subscription basis. The review says that, “Capital raise, including proceeds from distribution reinvestments, totaled an estimated $5.9 billion for the six months ended June 30, 2015, compared to an estimated $8.9 billion for the first six months of 2014.”

At the end of 2014, according to the review, Blue Vault “observed the impacts of negative publicity surrounding ARCP on equity capital raised by open non-traded REIT programs, particularly among ARC-sponsored REITs and those of Cole Capital. With the changes that have been made at ARC-sponsored non-traded REITs and the resumption of sales by many broker dealers, there has been a rebound, but clearly the fallout has hurt both the industry generally and Cole specifically.”

The review adds that “While AR Capital continued its leadership in equity raise in 2Q 2015 with a market share of 18.2 percent year-to-date vs. 14.8 percent in 4Q 2014, Griffin Capital, NorthStar, KBS, CNL, and Phillips Edison together accounted for 51 percent of industry sales so far in 2015. Cole’s sales rebounded somewhat in 2Q 2015 to $63.1 million after a lackluster 1Q 2015 total of $34.2 million.”

There were two full-cycle events producing liquidity for non-traded REIT shareholders in the second quarter of 2015, the review notes. “The listing by Apple Hospitality REIT on May 18 and the listing by American Realty Capital Global Trust on June 2, 2015, created approximately $5-billion in potential liquidity which could fund “recycled” investments in nontraded REIT programs.”

There are currently five full-cycle events announced which could occur in 3Q 2015, the review points out, noting that it is “a likely record for full-cycle events in any quarter in the industry’s history.”

It now appears unlikely that industry sales for 2015 will exceed $12 billion, the review says. “A number of new non-traded REIT offerings so far in 2015 do not appear to be raising capital at a pace that could reverse the recent trend, and the new shareholder statement rules due to be implemented in April, 2016, could be dampening sales.”

Stay tuned for part two from this report where we review that, although sales are down from Q1, volume is up.