Publicly traded REITs and non-exchange-traded net asset value (“NAV”) REITs have enjoyed a strong run the past few years as investors have scoured the investment landscape for income. But different factors are driving these investment vehicles, and it’s important to look under the hood before parking clients in either, say REIT experts.

Traded REITs are valued daily and offer daily liquidity. NAV REITs, perpetual-life products, are valued daily or monthly and offer periodic limited liquidity. NAV REITs were initially introduced before the Great Recession, but the Blackstone Real Estate Income Trust (BREIT), rolled out in 2017, was the first to get significant traction.

Other institutional managers have followed Blackstone’s lead with their own NAV REIT offerings. NAV REITs have stolen the thunder from traditional non-traded REITs (often referred to as life cycle REITs), which have a limited life and were plagued by a raft of problems associated with some sponsors, most notably Realty Capital’s Nicholas Schorsch.

When selecting a REIT structure, advisors should consider a client’s penchant for liquidity and stability, says Kevin Gannon, chairman and CEO of Robert A. Stanger & Co., a real estate investment banking firm based in Shrewsbury, N.J.

Traded REITs carry a bit more volatility than NAV REITs, he says, because the markets can be rattled by many macro-related reasons that aren’t necessarily related to real estate. The coronavirus is a recent example, he says. The impact of rising interest rates can often be felt more immediately on traded REITs than on non-traded REITs, he adds.

In contrast, a NAV REIT “mirrors the performance of the underlying real estate, without the mood swings of the financial markets,” says Gannon. “It’s generally not going to swing wildly absent some correction in real estate prices.”

Generally favorable demographic trends, a growing economy, job growth and low unemployment have been positives for all kinds of real estate lately, he says, and NAV REITs have a multi-class focus.

Traded REITs far outperformed NAV REITs last year, but Gannon says it was more about recovering some of the price depreciation they faced in 2017 and 2018 than about real estate performance. “They kind of got back on track,” he says.

While traded REIT indexes zigzagged, the Stanger NAV REIT Total Return Index has climbed steadily since 2017. Its cumulative three-year total return as of December 31, 2019, was 24.38%. The three-year total return was 14.17% for the Stanger Lifecycle REIT Total Return Index.

NAV REITs, which now account for more than 95% of the money raised for non-traded REITs, have resonated the past couple years with investors seeking more frequent valuation information and greater liquidity than what life cycle REITs offer, says Gannon.

First « 1 2 3 » Next