As
investor awareness of market risk and the value of asset allocation
have grown, non-traded real estate investment trusts (REITs) have
become a major component of many portfolios, especially for pre-and
post-retirees who rely on their investments to supplement their fixed
income holdings and help meet their ongoing expenses.
Industry experts
report that, over the long term, REITs have provided double-digit
returns to investors with a major portion of that return consisting of
dividends. But, until now-and since most of the post-2001 generation of
DPPs have not completed their investment cycle (investment, operations,
liquidation)-it was difficult at best to measure the investment
performance of the "new generation" of publicly registered, nontraded
REITs. (A typical life expectancy is between five and 10 years.)
In a special
supplement to the latest Stanger Report, the Winter 2007
"Investment Performance Report Card for the Non-Traded Public REIT
Industry," the performance assessment of all full-cycle programs after
their 1997 offering stage is outlined. The six-page "report card"
announces an average internal rate of return of 12.5% without dividend
reinvestment and 13.6% with it.
The first-ever
performance report on nontraded REITs, it clearly establishes that
investors in this product have met their objectives and have avoided
the type of volatility associated with securities markets. According to
the study, "Of all REITs which completed fundraising since 1998, seven
full-cycle funds have gone through their investment phases (from
commencement-liquidation) and are providing investors with their
promised liquidity event." These programs, which were offered
from 1995-2005, represent approximately 40%, or $11 billion (raised
collectively), of investor capital.
The report
explained how the "new generation" of REITs has overcome the stigma of
the partnership debacle of the 1980s through improved governance, lower
risk profiles, improved interim liquidity, improved program structure
and objectives, and many other elements.
It went on to
suggest that advisors can be very proud of their REIT recommendations
to clients as the products have lived up to their expectations. The
report stated that, "On average, the typical investor received a full
return of capital plus a combined gain (income and liquidation
proceeds) of an additional 64% during the average holding period of
about five years."
According to
Robert A. Stanger & Co., nontraded REITs continue to attract the
most capital, nearly doubling the annual investment in each year from
2000 through 2003. Since then, annual investment has averaged about
$6.2 billion. This compares with $17 billion in traded equity
REIT IPOs. Nontraded REITs account for more than 90% of total
direct investment in each of the last three years.
To obtain a copy of the report, call Robert A. Stanger & Co. at (732) 389-3600.