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Monday, 20 November 2017

Non-Traded REITs Raised Only $782Mln in 3Q

Non-traded REITs raised only $782 million of equity during the third quarter, their weakest showing in at least 13 years, bringing the total raised so far this year to $3 billion. It's likely that capital-raising for the full year will fall well below last year's dismal $4.8 billion raised.

Commercial Real Estate Direct Staff Report

The non-traded REIT sector continues to languish, as capital-raising continues to run at a record-low pace.

According to Summit Investment Research, 21 non-traded REITs raised $782 million during the third quarter, down from $1 billion in the second. So far this year, only $3 billion of equity has been raised by non-traded REITs. So it's likely that capital-raising for the full year will slip behind last year's $4.8 billion raised, making it the weakest showing in the 13 years for which the Gilbert, Ariz., research company has compiled data.

Contrast that with 2013, the peak year for the sector, when it had raised $20 billion. It then was dominated by AR Global, which had sponsored no fewer than 15 REITs. The New York company, founded by Nicholas S. Schorsch, became a capital-raising juggernaut in part by providing its investors liquidity. Non-traded REITs are typically illiquid investment vehicles, meaning investors who buy shares can't readily sell them. Instead, they're designed as long-term funds that aim to provide their investors with steady distribution streams.

But Schorsch figured out that if he provided liquidity to his investors, they'd plow their capital into other similar vehicles. So he launched non-traded REIT after non-traded REIT and started consolidating. He formed American Realty Capital Properties Inc. in 2011 by consolidating 29 partnerships he had sponsored that owned 63 net-leased properties and took that operation public. He then started bulking it up by using its shares as currency to buy other AR-sponsored REITs. As shareholders were bought out, they invested in new AR-sponsored entities. The company generated fees for selling shares and sundry other services it provided. The music stopped two years ago when AR said it would stop forming additional REITs and raising capital. A year earlier, American Realty Capital reported an accounting error in its first-quarter financial results.

When AR quit the business, it cited growing regulations, namely the Department of Labor's fiduciary rule and the Financial Industry Regulatory Authority's notice 15-02. The fiduciary rule, which is still pending, would make most financial advisers fiduciaries if they were selling financial products to a client's retirement account. And FINRA 15-02 requires sponsors of non-traded REITs to include estimated values of investors' holdings in their regular statements.

Those rules have drawn a number of new sponsors, changing the way capital for non-traded REITs is raised. Traditional sponsors, including AR Capital, Behringer Harvard and W.P. Carey Inc., have quit the business. In their place, however, have stepped in institutional investment managers such as Blackstone Group, Starwood Capital Group and most recently, CIM Group, which last week struck a deal to buy the Cole Capital non-traded REIT business of VEREIT Inc., the former American Realty Capital Properties Inc.

Out are the hefty upfront sales commissions that made non-traded REITs so popular among broker-dealers and financial advisers. In are offerings with multiple classes of shares with ranges of upfront brokerage fees. And all now provide net asset values at which shares are sold and purchased.

The thinking is that non-traded REITs all will adopt similar strategies.



Amt Raised $mln 3Q2017

Amt Raised $mln
TTM 3Q2017

Total Amt
Raised $mln

Blackstone Real Estate Income Trust





Carter Validus Mission Critical REIT II Inc.





Griffin-American Healthcare REIT IV Inc.





Hines Global REIT II





Cole Real Estate Income Strategy





Source: Summit Investment Research

Blackstone remains the most active player in the sector, having raised $353 million during the latest quarter. While that's down 14 percent from the $412 million raised during the second quarter, it still accounted for 45 percent of the entire market and brings the total that the investment manager has raised for its Blackstone Real Estate Income Trust to $1.2 billion. The company started raising capital for the REIT only in September 2016.

Number two on Summit's list of active non-traded REITs is Carter Validus Mission Critical REIT II, which was launched in May 2014 and raised $118 million during the latest period, bringing its total to $1.1 billion. Well behind it was Griffin-American Healthcare REIT IV, which was launched in early 2016 and so far has raised $359 million. During the third quarter, it raised $75 million, down from the $95 million...


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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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