Non-traded real estate investment trusts raised a total of $1.1 billion in investor capital in the second quarter of 2018, according to the latest Non-Listed REIT Market Snapshot issued by research and due diligence firm Summit Investment Research. Summit noted that perpetual life REITs, a growing trend in the non-traded REIT space, raised approximately 77 percent of the total equity during the quarter.
So far in 2018, non-traded REITs have raised $2 billion in equity capital, which is on pace to exceed the record low $3.9 billion in 2017, but is a far cry from the $20 billion fundraising peak of 2013. Blackstone Real Estate Income Trust, which broke escrow in January 2017, continues to dominate the space with a 68 percent market share and $772 million raised during the quarter.
Griffin-American Healthcare REIT IV and Cole Real Estate Income Strategy (Daily NAV) rounded out the top three fundraisers with $66 million and $57 million raised, respectively. Carter Validus Mission Critical REIT II took the fourth spot with $44 million and Black Creek Industrial REIT IV came in fifth with $37 million.
The second quarter saw cap rates decline from 6.6 percent to a record low 6.0 percent, a 29 percent decline from 2010. Summit pointed out that cap rate compression, which highlights commercial real estate price increases, was driven by interest rates on new debt. Average interest rates on new permanent debt increased from 3.9 percent to 4.2 percent during the quarter, and Summit noted that higher interest rates will continue to reduce leveraged equity yields.
Occupancies for non-traded REITs remained at 92 percent for the second quarter in a row, compared to 93 percent during the fourth quarter 2017. For retail, office, and industrial assets, average lease terms also decreased slightly to 7.4 years, compared to 7.6 years in the first quarter of 2018.
The leverage ratio for non-traded REITs remained at moderate 43 percent in the second quarter, which is comparable to traded REITs. With high commercial real estate prices, Summit said that non-traded REITs have utilized variable rate debt to boost their leveraged yields. Variable debt ratios have increased from 17 percent in 2012 to 34 percent in the second quarter of 2018. Non-traded REITs also have a high 35 percent short-term debt ratio.
Summit Investment Research covers non-traded REITs, business development companies, interval funds, and listed REITs (that acquired non-traded REITs or were once non-traded). The company’s research is utilized by financial advisors, registered investment advisors, broker-dealers, sponsors, service providers such as law firms, due diligence firms, industry organizations, and news organizations, and institutions.