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Monday, 09 April 2018

Non-Traded REITs Increase 4Q Equity Raising; 2017 Volume Lowest in 14 Years

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Commercial Real Estate Direct Staff Report

Non-traded REITs raised $879 million of equity capital during the fourth quarter, up 11.3 percent from the third quarter, bringing their capital-raising activity to $3.9 billion for the year, according to Summit Investment Research.

The total compares with the $4.8 billion of equity raised by non-traded REITs in 2016 and marks the lowest volume raised in 14 years, according to the Gilbert, Ariz., research company, which tracks the non-traded REIT and business development company sectors.

The top dog during the latest quarter and the full year was Blackstone Real Estate Income Trust, which so far has raised $1.7 billion of equity from some 13,000 investors since its founding in August 2016. It raised $473 million during the latest quarter - its most-active three-month period, bringing its total for the year to $1.4 billion. Its quarterly total represented 53.8 percent of the amount raised by all non-traded REITs during the period.

Its ability to raise capital easily has made the company an acquisitions juggernaut. Last year alone, it completed 27 investments totaling $3.6 billion, including 115 apartment, industrial, hotel and retail properties and 38 CMBS investments. It carries $2.8 billion of debt on its balance sheet.



Amt Raised 4Q $mln

Amt Raised 2017 $mln

Total Raised

Blackstone Real Estate Income Trust





Carter Validus Mission Critical REIT II Inc.





Griffin-American Healthcare REIT IV Inc.





Cole Real Estate Income Strategy (Daily NAV)





JLL Income Property Trust





26 Others










Source: Summit Investment Research

No other non-traded REIT even came close to Blackstone last year in terms of capital raising. Carter Validus Mission Critical REIT II, which was launched in 2014, raised $418 million for the year, bringing its total amount raised to $1.2 billion. And Griffin-American Healthcare REIT IV Inc. raised $60 million during the latest quarter and $297 million for the year. It so far has raised $420 million since its inception just more than two years ago.

According to Summit, only four companies so far have raised more than $1 billion of equity apiece. Industrial Property Trust, a distribution-facility REIT sponsored by Black Creek Group of Denver, so far has raised $1.74 billion of equity, roughly $23 million more than Blackstone Group's REIT. It's been in business since July 2013.

JLL Income Property, meanwhile, has raised $1.46 billion of equity. It's an odd-ball of a REIT, having had a previous life as Exelsior LaSalle Property Fund Inc., an institutionally capitalized vehicle that was started in 2004. The fund was converted into a non-traded REIT in 2011. The fact that it started life with an existing portfolio made it unique among non-traded REITs. Most non-traded REITs start out as blind pools, where they raise capital in order to buy assets. JLL, like a growing number of non-traded REITs, has a perpetual life, meaning it doesn't plan to executive a liquidity event, and it resets its net asset value on a daily basis.

Many of the newest REITs to be launched have adopted a similar strategy. They also have changed the fees they charge investors. Whereas traditional sponsors typically had charged hefty upfront brokerage and sales fees - often amounting to more than 10 percent of the amount raised - the new batch of industry entrants have taken a more institutional approach to capital-raising and management. They typically charge only an annual management fee.

The non-traded REIT industry had its peak, in terms of capital raising, in 2013, when it raised a collective $20 billion. The industry was then dominated by AR Global, which had sponsored no fewer than 15 REITs. The New York company, founded by Nicholas S. Schorsch, had formed American Realty Capital Properties Inc. in 2011 by consolidating 29 partnerships and taking it public. The company then used that as a liquidity vehicle for non-traded REITs it sponsored. American Realty would acquire AR Global-sponsored entities, using its shares as currency. Investors in the non-traded REITs received shares in a traded entity and often re-invested some proceeds into other AR Global-sponsored companies. Meanwhile, the company generated fees for selling shares and sundry other services it provided.

The company in late 2014 got into hot water when it reported that it had incorrectly disclosed a key data point in its financial results. Then in late 2015, it said it would stop selling shares in existing non-traded REITs and stop launching new companies. It blamed uncertainty surrounding certain pending regulations, particularly the Department of Labor's fiduciary rule, which would make most financial advisers fiduciaries if they were selling financial products to a client's retirement account. Labor last month said it wouldn't be enforcing the rule after a court found it unreasonable. The rule would have had a profound impact on AR Global's business plan of selling shares in illiquid instruments to individual investors in exchange for hefty brokerage commissions.

Since AR Global's departure from the sector, other sponsors have tried to take its place. Most have an institutional pedigree and promise to bring institutional investment practices to the retail investment field. Those practices include offering shares with small or no sales commissions and instituting annual asset management fees. Most of the companies they've launched are designed to have perpetual lives, meaning they won't list their shares or execute any other liquidity event, and all calculate their NAVs on a regular basis, selling their shares and redeeming them at those levels.

Those sponsors include Oaktree Capital Management, which last month filed to raise capital for Oaktree Real Estate Income Trust Inc.; Starwood Capital Group, which last October launched Starwood Real Estate Income Trust Inc., and TIAA, which recently launched Nuveen Global Cities REIT Inc.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.


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Read 1403 times Last modified on Wednesday, 11 April 2018

Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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