Money flowing into nontraded REITs slowed in the recent quarter but is ahead of last year's pace, according to recent data.
Nontraded REITs--real estate investment trusts whose shares are sold directly, not via the stock market--saw inflows of $2.1 billion in the third quarter, or $100 million less than the prior quarter. But the industry is expected to raise roughly $7.6 billion in 2010, which would be a nearly 19% jump from last year's $6.4 billion, according to Blue Vault Partners, an Atlanta-based company that tracks the industry and provides research for financial advisors, REIT sponsors and others.
"It's a mixed bag for the nontraded REIT industry right now," said Stacy Chitty, managing partner of Blue Vault Partners.
Chitty said the nontraded REIT space is getting crowded, with the number of new offerings up 25% this year. "The investment pie's growing, but it's being cut into more and smaller slices," she said.
Cole Credit Property Trust III was the most active nontraded REIT, with $383 million in new investments. The multifamily sector was the most active for new programs with four new apartment REITs launched in the past six months.
The overall industry has $70 billion in assets among 57 nontraded REITS. According to Blue Vault Partners, nontraded REITs comprise 18% of the equity market capitalization of the entire public REIT industry.
While they're not listed on stock exchanges like publicly-traded REITS, nontraded REITs are public offerings that file with the SEC. A big difference is that investors buy and redeem shares with the fund sponsor that issued them rather than through a secondary market.
As Blue Vault Partners acknowledged in a press release, nontraded REITs are a "distinct and sometimes controversial niche" among REITs. The funds pay dividend income over a long time period--typically seven to 10 years, with limited liquidity.