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.