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Non-traded REIT Sales Continue Slump in First Quarter 2016

Sales of non-traded REITs continued to slump in the first quarter of 2016, according to data compiled by Robert A. Stanger & Co. Uncertainty surrounding the highly anticipated release of the Department of Labor’s fiduciary rule, as well as the effectiveness of FINRA’s 15-02, continued to impact equity raising throughout the industry. April provided the direct investment space with surprisingly good news on the regulatory front, as the DOL released a milder, less compliance heavy fiduciary standard than what was expected, although the impact on future sales on non-traded REITs is obviously unknown at this time.

In the first three months of 2016, sales of non-traded equity REITs decreased 40 percent from last quarter, raising just $1.29 billion. During the same period in 2015, non-traded equity REITs raised a total of $2.98 billion, 56.5 percent more than in 2016.

Mortgage REIT sales topped $106.4 million during the first quarter and experienced a similar percentage decline as their equity counterparts, down 43.3 percent from last quarter. During the same period in 2015, mortgage REITs topped $289.8 million, a 63.3 percent difference compared to 2016.

Largely as a reaction to FINRA’s 15-02, multi-share class REITs gained traction and increased in popularity, spurred by the sales of low and no-load REIT shares, while its single-share counterparts saw a subsequent decline in overall sales.

Traditional structure, single class REITs were down a whopping 63.7 percent from last quarter, with sales reaching $406.1 million during the first quarter of 2016. Much of this decline was the elimination of class A shares by several sponsors which replaced them with class T shares that feature a smaller up-front securities load and trailing commissions. The dismal sales were even more dramatic compared to last year when these single class REITs raised $2.58 billion, an eye-watering decline of 84.3 percent compared to 2016. The market share for these programs also declined 50 percent, from 79 percent to 29 percent, year over year.

Traditional structure, multi-share class REITs were still down 23.5 percent compared to last quarter, with an equity raise of $808.4 million in 2016. However, compared to the first quarter of 2015, sales jumped 32.3 percent from $611 million. Market share for these programs also increased from 18.7 percent in the first quarter of 2015 to 57.7 percent in 2016, a positive change of 39 percent.

Daily NAV REITs increased steadily in the first three months of the year with sales topping $186.7 million, a 10.5 percent increase from last quarter. Compared to the same period last year when sales topped $76.2 million, daily NAVs experienced a dramatic uptick of 144.9 percent in 2016. Their market share also increased 11 percent in 2016, from 2.3 percent to 13.3 percent, year over year.

Sales of low and no-load shares of traditional and daily NAV REITs also experienced drastic increases compared to their full sales load counterparts. Sales of low/no load REITs totaled $609.6 million during the first quarter, an increase of 17 percent compared to last quarter. This represents a massive year over year increase of 245.5 percent compared to 2015 when sales were just $176.4 million.

Multi-class and daily NAV REITs saw sales of their full-load shares reach $385.5 million, a decrease of 45.2 percent compared to last quarter. Sales of these shares declined 24.5 percent compared to the first quarter 2015 when sales reached $510.8 million.

Dividend Capital’s Industrial Property Trust was the top selling non-traded REIT with a $190.6 million of capital raised during the first quarter. Steadfast Apartment REIT, which closed its $1.1 billion offering last month, was not far behind with $178.6 million in total sales. Carey Watermark Investors 2 ended the quarter in third place with sales totaling $157 million.

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