Registered non-traded REITs have grown from eight sponsors and nine products in 2000 to 42 sponsors and 54 products in 2010, says Keith Allaire, a managing director at Robert A. Stanger & Co. in Shrewsbury, N.J. Fundraising went from $583 million in 2000 to $7 billion in 2003. In 2009 alone, $6.1 billion was raised.
The latest figures, according to Allaire, show that nine SEC-registered non-traded REIT deals liquidated in 2007-near the peak of the real estate market. They provided internal rates of return averaging about 13.5% to investors.
The later, more depressed real estate market, however, paints a less clear and possibly less rosy picture of the performance of unlisted REITs.
The only example since, experts say, is Piedmont Office Realty Trust (PDM) in Atlanta, an owner of Class A properties. That company went public on the New York Stock Exchange. On February 15, it issued 7.5% of its year-end outstanding shares as common stock.
The offering came after its board suspended its share redemption plan on November 24, 2009, and then afterward recapitalized its common stock, in what was, in effect, a one-for-three stock split.
The company said that the goal of the public offering was to attract institutional investors, according to its February 16 stockholder letter. If instead Piedmont investors had put their money in public office public traded REITs from around 2002 until Piedmont's first trading close at $15.60 per share, they would have fared far better, according to Newport Beach, Calif.-based Green Street Advisors.
Piedmont shareholders earned nothing, based on the total return during that period, which represents an average time/dollar weighted investor, according to Green Street Advisors. By contrast, it says, the public office public traded REIT median total return was 5% annually during that period. (Green Street both acts as a consultant for REITs and trades in them.)
Piedmont trading opened at $14.75 on February 10. Only time will tell if its move will improve the fortunes of the non-public shareholders. Nearly two months after the offering, the stock had attracted no institutional investors, according to information posted on Yahoo Finance. The largest public stockholders were Piedmont directors and officers, and the stock price had risen from its opening $14.75 to around $20.
Meanwhile, many REIT investors have suddenly found their dividends slashed and their redemptions suspended. Allaire says that in 2010, 61 SEC-registered traded REITs slashed dividends by an average of 57%, while 13 SEC-registered non-traded REIT programs cut dividends by an average of 32%.
Attorney Chris Vernon is weighing whether to represent investors on additional private REIT claims. "Fixed income investors are looking for return and to protect their principal," Vernon declares. The private REIT, he says, "is sold as an alternative to a bond. All of a sudden, they find their dividends are reduced or taken away altogether and they're being told they can't switch investments!"
Vernon doesn't distinguish between registered non-traded REITs, which often charge 13% to 15% in fees and commissions, and private placement non-traded REIT deals. Even though registered non-traded REITs may be examined by different U.S. states, the examination doesn't necessarily ferret out a bad investment, Vernon says. "The [state] vetting process has to do with whether they meet all the criteria for being issued as registered securities-not the quality of the product within the REIT."