Others downplay the costs, saying they average out to be lower for those people who invest early and stay with them for the duration. "Given that this will be a seven- to ten-year hold and that it's a 7% commission, it's very comparable to a fee-based account at around 1% of assets under management," says Jeff Shafer, president of CNL Securities Corp., a real estate investment company in Orlando, Fla.

"People always complain about the front-end load," says Kevin Gannon, managing director at Robert A. Stanger & Co., a Shrewsbury, N.J.-based investment banking firm specializing in real estate, REITs and direct participation programs. "It is seemingly high, but so is the exit opportunity when you exit in a positive market."

Only seven private REITs have gone full cycle since 1998, meaning they've gone from the initial funding to payout. The typical private fund might take three to seven years to raise capital before it closes, and depending on market conditions, it might wait another year or three for the right time to liquidate.

According to Stanger, two of those seven full-cycle funds went public and the others either merged or closed by selling properties. These seven funds averaged a total return of 64%, or $16.43 on every $10 per share invested. Investors who participated in a dividend reinvestment program saw average gains of 89%, or $18.86 per share. Those figures assume that the investment is made at the approximate midpoint of a fund's multiyear offering period; the gains could be more or less depending on when an investor entered the fund.

Those successful full-cycle funds began raising money in the '90s and were ready to cash out before the real estate market crashed. Others will have to wait for their hoped-for payday. "A number of REITs who wanted to go public in '07 and '08 missed their chance," Black says.

Meanwhile, a number of non-traded funds are raising cash and scooping up real estate at favorable prices. "Given the valuations of property and the lack of liquidity in the market, now could be an ideal long-term opportunity," Towle says.

Buy-N-Hold
Non-traded REITs emerged in the 1990s from the ashes of failed real estate limited partnerships, which were promoted as tax shelters but ultimately fell apart because of changing tax laws and a real estate downturn. The sector got off to a slow start, but non-traded REITs-and real estate in general-zoomed after the dot-com implosion. The amount of equity raised in non-traded REITs roughly doubled in size each year between 2000 and 2003, and then basically plateaued for the next few years. It spiked to $11.4 billion in 2007, followed by $9.9 billion last year. Gannon says equity-raising started slowly this year, but in March it rose 23% over the prior month. He expects the sector to raise $6 billion to $7 billion in 2009.

Despite the industry's growth, some investors have soured on non-traded REITs. "I learned this is a big 'trust me' investment," says Phillip Cook, a financial planner in Torrance, Calif., who invested in the sector during the early days. "As in, 'Trust me, we'll have the money to take you out if you want to get out, or that we'll do the right things by you even if you don't have immediate liquidity.' Because of that 'trust me' aspect, I can't see the return justifying the risk."

Some non-traded REITs require as little as $2,000 to invest, but they're structured as long-term investments that place limits on the investors' ability to sell and get their money back whenever they want. "You pay a price for non-traded REITs, and that price is liquidity," says Michael Dowd, senior vice president of the United Group of Companies, a Troy, N.Y.-based firm specializing in real estate and debt financing. "You have to decide what portion of a portfolio you want to be in sticky stuff that's hard to sell."

Indeed, these vehicles aim to put the "hold" in "buy-and-hold." "We want to attract capital that'll be here for the length of the program," says Shafer, whose CNL Securities is currently raising cash for two non-traded funds. One is a global REIT the firm launched with partner CB Richard Ellis Investors, which manages it. The other is a lifestyle properties REIT focused on ski resorts, golf courses and theme parks.