With Blackstone raising $250 million a month in its recently created NAV REIT, Nuveen, Starwood Capital, Griffin Capital and Oaktree are poised to follow the nation’s largest alternative investment manager with similar vehicles of their own.

It’s not yet clear whether NAV REITs, technically described as non-exchange-traded, perpetual-life REITS that price their net asset value daily and offer monthly redemptions, will replace non-traded REITs as a leading private investment structure for retail investors, but the market is rapidly expanding.

Since Blackstone launched Blackstone Real Estate Income Trust (BREIT) in 2017, the market has grown to more than $2 billion. Blackstone has captured about 67 percent of all assets, according to Kevin Gannon, president of Robert A. Stanger & Co.

Unlike previous incarnations of private REITs (sometimes called lifecycle REITs), NAV REITs don’t liquidate. That leaves the decision of when to sell the investment up to the broker or advisor and their client, not the product sponsor.

Whereas the old lifecycle REITS were designed to have five-year to 10-year lifespans, NAV REITs are intended to be the perpetual-life vehicles. Most also have language in the prospectus that gives them the option to convert to a publicly traded REIT.

So far, the various NAV REITs that have been introduced have much lower fees than the old generation of non-traded REITs, which were frequently criticized for hefty expenses and commissions. While this structure is more investor-friendly, it requires individual REIT sponsors to achieve greater economies of scale to be sustainable.

Gannon said the value proposition is that NAV REITs aren’t subject to equity market volatility and yet offer far more liquidity than the old generation of private REITs. While there were secondary markets to trade the former vehicles, liquidity was thin and bid-ask spreads were wide.

In a world starved for income, some believe that prices of publicly traded REITs have reached rich valuations, like consumer staple and utility stocks. Some investors view all three groups as proxies for bonds. As the Fed has raised interest rates over the last year, many of these securities have suffered.

With $434 billion in alternative assets under management, Blackstone doesn’t have any profitability questions. New entrants to the market like Starwood, Nuveen, Griffin and Oaktree are also highly profitable businesses, though the jury is still out on how they will fare in the newfangled market.

Most of the new players are modeling their investment structures along the same lines as Blackstone to make it easier for research and due diligence experts at brokerages and RIAs to examine the products. For its part, Blackstone probably wants other real estate operators to enter the space because it provides them “some cover” and validates the investment vehicle, Gannon said.

Blackstone’s NAV REIT charges 125 basis points on equity and takes 12.5 percent of the total return once it exceeds a 5 percent hurdle rate. Most of the new players are keeping equity at 40 percent to 50 percent of total capital to quash fears of excess leverage.

However, Blackstone is using more debt and generating impressive double-digit returns. Its website says BREIT has a 57 percent leverage ratio that would be higher “if debt on our securities portfolio is taken into account.”

Blackstone became the largest owner of U.S. real estate after the Great Recession. BREIT, with 272 properties and $7.2 billion in total asset value, represents only a fraction of the real estate it controls. “They’re Blackstone, they have an excellent record in real estate and they can do it,” said one rival, referring to their leverage strategy.

Nuveen’s new NAV REIT is charging 125 basis points on equity and zero incentive fee. “That’s a pretty good deal; it’s hard to beat,” Gannon said.

These firms also are likely to differentiate their investment products by employing disparate strategies in various areas of real estate. Nuveen's web site says it is targeting big, winning global cities where properties have been white hot. Other firms reportedly are targeting mostly secondary markets where they see more value and potential upside.

Starwood plans to invest in both the U.S. and Europe and one source said it is likely to target select-service hotels, multi-family and office/industrial properties. Griffin's properties tend to be concentrated in the industrial, office and manufacturing markets and its net leases generally have built-in increases to provide a degree of inflation protection.

The shift to fee-based accounts also is driving the popularity of NAV REITs. “It is preferable to charge a fee on a security that has daily pricing as opposed to one that is valued once a year,” said Mark Goldberg, president of Griffin Capital Securities.

Moreover, advisors and brokers rebalancing clients’ portfolios need to be able price all the various assets a client owns to maintain their asset allocation weights, he added. Griffin converted their Essential Asset REIT 2, originally introduced as a lifecycle REIT valued annually, into an NAV REIT last year. Griffin was the number three fundraiser in the combined lifecycle and NAV REIT space in 2017, according to data compiled by Stanger.

So far, NAV REITs are largely being sold through wirehouses and, to a lesser degree, RIA firms. Sources said Blackstone reportedly is receiving some $5 million to $10 million tickets from large RIA firms that are buying their REIT via institutional shares.

Independent broker-dealers (IBDs) have been slower to embrace NAV REITs. Many IBDs ran into compliance issues and hefty fines with old non-traded REITs.

Some independent reps may have been attracted to the old vehicles because of their high commissions, not their investment merits. Moreover, with a lower cost structure, it’s more efficient for marketers of NAV REITS to go into a wirehouse branch office with 100 brokers than “to take four independent reps to IHOP,” one observer said.