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Non-Traded REIT Sales Drop Again in the Second Quarter

The new regulatory environment continued to take its toll on the non-traded REIT industry as sales dropped again in the second quarter to just $1.1 billion, according to the Non-Listed REIT Market Snapshot issued by Summit Investment Research. Sales for the year topped out at $2.5 billion, which represents the slowest fundraising pace in more than a decade, on an annualized basis.

Non-traded REIT sales peaked in 2013 with $20 billion in equity raised, but have been in free fall since 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.

Distribution reinvestment plans brought in $375 million during the second quarter, almost one-third of the overall equity raised. This is the highest amount of reinvested capital received by non-traded REITs since at least the first quarter of 2012. Share redemptions increased to $268 million in the second quarter, with non-listed REITs posting $1 billion in redeemed equity over the last four quarters.

Cap rates have been steadily declining over the last five years and continued to drop in the second quarter to 5.8 percent, a 32 percent decrease from 2010’s rate of 8.1 percent. Cap rates represent the ratio of a property’s net operating income to its market value and can estimate a potential return on an investment. 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 have ticked up to 3.8 percent, a slight increase from 3.6 percent last year. This latest interest rate increase is the first in five 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 $160 million in equity raised. The second spot went to Griffin Capital Essential Asset REIT II with $120 million in sales, and Industrial Property Trust came in third with $109 million. Strategic Storage Trust II and Carter Validus Mission Critical REIT II were neck and neck with sales totals of $95 million and $93 million, respectively.

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