“Traded REITs have merits, but they perform more like stocks than real estate, they’re often correlated with certain sectors,” says Wasterlain.
Non-traded REITs aren’t as closely correlated to stocks and offer a steady income stream in a low-rate environment, says Wasterlain, but investors often aren’t aware of how their dividends are being paid, “often from capital that’s raised and not from investment income. We’re going to make sure that our dividends are sustainable.”
The first fund on the platform, the CAPFUNDR REIT Value Fund I, is designed to purchase shares of non-traded REITs below their intrinsic value. The fund is managed by Wasterlain and Yu.
CapitalFund Realty will raise $5 million for the fund, limited to 100 investors, and buy non-traded REIT shares off the secondary market mainly from auction websites and brokers.
“With the performance of some of these REITs over the financial crisis, there were so many people looking for redemptions that they closed down their redemption programs,” Wasterlain says. “They had no other way to get out than the secondary market.”
Wasterlain says non-traded REIT shares often sell at discounts of 50 percent or more of their net asset value, presenting a value for investors because they continue to pay dividends until a liquidity event like a sale or public listing.
The minimum investment in the fund will be $10,000, and it will pay out a quarterly distribution.
“We’re able to pay out a core five percent dividend payment, and we expect that to grow since we’re buying at a low discount to net asset value,” says Yu. “When they do have a liquidity event, they’re likely to end up with a positive value.”
The fund is limited in size by the relative scarcity of non-traded REIT shares on the secondary market and the lack of any formal exchange for the investments.
Moving forward, Wasterlain and Yu plan to offer additional strategies that invest in multifamily, net lease and retail properties, funds that won’t necessarily be sponsored by the duo, but screened for quality and appropriateness.