SK Research, a third party due diligence firm and provider of direct investment research and analysis for broker-dealers and financial advisors, recently released its Non-Traded REIT Market Intelligence Report, which analyzes trends in cap rates, interest rates, cap rate spreads, investment strategies, and financing strategies relating to non-traded real estate investment trusts.
Non-traded REITs acquired $5.3 billion of core commercial real estate in the first quarter of 2015, after acquiring $21 billion in 2014. Non-traded REITs continue to establish their presence as significant investors in the commercial real estate market. Based on existing cash balances, we believe non-traded REITs are on pace for another strong acquisition year in 2015.
From a commercial real estate sector standpoint, non-traded REITs had the strongest focus on the hospitality and office sectors, with $2.2 billion and $1.1 billion invested, respectively, in the first quarter of 2015. American Realty Capital Hospitality Trust led all hospitality non-traded REITs with $1.8 billion in acquisitions, while Hines Global REIT led all office non-traded REITs with $350 million in acquisitions.
In the first quarter of 2015, non-traded REIT cap rates decreased to 6.64 percent, which is a decline from 7.12 percent in 2014. Since their peak in 2009, non-traded REIT cap rates have declined by 26 percent, reflecting rising commercial real estate prices over the last several years. Commercial real estate pricing markets are demand driven, and low interest rates on long-term debt are fueling the growing demand for the highly levered equity yields of core commercial real estate.
Non-traded REIT cap rates vary by commercial real estate sector. In the first quarter of 2015, the hospitality and healthcare sectors had the highest acquisition cap rates at 8.81 percent and 7.69 percent, respectively. The higher cap rates generally reflect greater market risk on first quarter acquisitions. Non-traded REIT retail investments had moderate 6.9 percent cap rates, while industrial and office had low 6.4 percent and 6.0 percent cap rates, respectively.
SK Research is a source for cap rate, interest rate and cap rate spread market data for non-traded REITs. Non-traded REIT investment data and analysis for the first quarter of 2015 is now available in SK Research’s Non-Traded REIT Market Intelligence Report, which is available to subscribers of SK Research’s non-traded investment research. To learn more, click here.