Non-traded real estate investment trusts raised a total of $879 million in capital in the fourth quarter of 2017, bringing the total for the year to $3.9 billion, according to the latest Non-Listed REIT Market Snapshot issued by research and due diligence firm Summit Investment Research. During the third quarter, non-traded REITs raised just $782 million.
Fundraising in 2017 represents a 19 percent decrease from 2016’s total of $4.8 billion and 81 percent decline from the $20 billion peak in 2013.
Blackstone Real Estate Income Trust, the non-traded REIT sponsored by private equity behemoth The Blackstone Group (NYSE: BX), continued to dominate the space with $473 million in equity raised during the fourth quarter and a staggering $1.4 billion for the year. Blackstone REIT broke escrow in January 2017 and held a 54 percent share of the market during the quarter.
Carter Validus Mission Critical REIT II was the second highest fundraiser in the fourth quarter with $126 million raised, followed by Griffin-American Healthcare REIT IV with $60 million raised. Cole Real Estate Income Strategy (Daily NAV) was not far behind with a $49 million equity raise during the quarter.
Cap rate compression, which highlights commercial real estate price increases, is driven by interest rates on new debt. Cap rates ticked up from 6.3 percent in 2016 to 6.6 percent in 2017 after a steady 8-year decline. Average interest rates on new permanent debt increased from 3.7 percent to 3.9 percent year-over-year.
Occupancies for non-listed REITs remained unchanged at 93 percent during the fourth quarter, while average lease terms for retail, office, and industrial properties decreased slightly to 7.8 years from 7.9 years last quarter.
Summit reported that the leverage ratio for non-traded REITs increased to a moderate 42 percent from 38 percent in 2016, which is comparable to publicly traded REITs. Variable debt ratios dropped slightly to 33 percent in the fourth quarter of 2017, the lowest level since 2013. However, this is nearly double the 17 percent variable debt ratio in 2012.
Non-traded REITs raised $365 million through their distribution reinvestment programs in the fourth quarter, a slight increase from last quarter’s raise of $354 million. Summit noted that reinvested distributions will continue to provide significant capital for redemptions and new investments by non-listed REITs, as only a few large REITs are currently liquidating assets.
Share redemptions remained high over the last two years and were $453 million during the fourth quarter, compared to $319 million last quarter. Most non-traded REITs cap annual share redemptions at 5 percent of outstanding shares, and Summit noted that some closed programs have terminated their share redemption programs or are hitting their quarterly share redemption limits. Non-traded REITs have redeemed a record $1.5 billion in equity over the trailing four quarters.
Summit Investment Research has been active since April 2016 and 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.