Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Thursday, 24 August 2017

Capital-Raising by Non-Traded REITs in 2Q Drops to Lowest Level in 13 Years

Non-traded REITs, which during the market's heyday raised more than $10 billion annually, have become shadows of their former selves. If not for Blackstone Group, capital-raising in the non-traded REIT space would have totaled only $622 million, making the sector a nearly inconsequential player in the broader commercial real estate sector.

Commercial Real Estate Direct Staff Report

Non-traded REITs, which during the market's heyday raised more than $10 billion annually, have become shadows of their former selves.

If not for Blackstone Group, capital-raising in the non-traded REIT space would have totaled only $622 million, making the sector a nearly inconsequential player in the broader commercial real estate sector.

The non-traded REIT market hit its peak in 2013, when it had raised a total of $20.5 billion, led by AR Global-sponsored vehicles, which had raised more than 41 percent of that total. That capital could have been used to complete some $60 billion of transactions, which would have been roughly 16 percent of that year's total property sales volume.

Blackstone, a dominant player in institutional circles, launched its Blackstone Real Estate Income Trust roughly a year ago and since then has absolutely dominated the sector - much like it dominates the institutional investment-management world. The capital it raised during the second quarter amounted to roughly 40 percent of the $1 billion of equity raised by non-traded REITs during the latest quarter, according to Summit Investment Research. So far this year, the sector has raised $2.2 billion, putting it on a $4.4 billion annual run rate. For all of last year, $4.8 billion was raised, which was down from $10.2 billion in 2015.

Company

Sector

Amt Raised $mln 2Q2017

Amt Raised $mln
TTM 2Q2017

Total Amt
Raised $mln

Blackstone Real Estate Income Trust

Various

412.00

895.00

895.00

Industrial Property Trust

IND

100.00

399.00

1,744.00

Griffin-American Healthcare REIT IV Inc.

HLTH

95.00

268.00

284.00

Carter Validus Mission Critical REIT II Inc.

HLTH, DATA

91.00

309.00

981.00

Cole Real Estate Income Strategy

OFF, IND

45.00

164.00

392.00

Source: Summit Investment Research

Industrial Property Trust, which was launched in 2013 and is sponsored by Dividend Capital Trust of Denver, raised $100 million during the quarter. Just behind it, in terms of amount raised during the quarter, were Griffin-American Healthcare REIT IV Inc., which was launched last year and is sponsored by Griffin Capital Corp., raising $95 million; and Carter Validus Mission Critical REIT II, which raised $91 million and specializes in properties such as data centers.

The capital raised by the sector during the quarter was the lowest in 13 years, according to Summit, a Gilbert, Ariz., research company focused on non-traded entities.

Plaguing the industry are regulations, specifically the Department of Labor's fiduciary rule, which would make most financial advisers fiduciaries if they sell financial products to a client's retirement account. The rule hasn't been fully implemented, and until recently some had expected that it might be overturned, which prompted sponsors to stall their capital-raising efforts.

Meanwhile, a number of traditional players, including Lightstone Group, Behringer Harvard and ARC Global, have essentially pulled out of the market, likely in part because of the rule.

ARC Global, which had been the sector's leading player, quit the business two years ago because of the fiduciary rule, as well as the Financial Industry Regulatory Authority's notice 15-02, which requires that sponsors provide shareholders with estimated per-share values of their holdings on their regular statements.

But the sector's not dead yet. Michael Stubben, president of Summit, suggested it's on the cusp of a massive sea-change, where institutional managers will sponsor products - non-traded REITs - for consumption by retail investors. They've seen the success Blackstone has had and will jump in. Indeed, Colony Capital last year merged with NorthStar Realty Finance Corp., which sponsored a number of REITs, putting it smack in the middle of the sector.

Meanwhile, KBS Realty Advisors long has participated in the non-traded REIT space, having long ago opted to quit raising institutional capital for commingled funds and instead tap retail investors for that business. It still invests on behalf of institutional investors via separate accounts. Hines also sponsors a pair of non-traded REITs.

The...





weekly-call-to-action

“The Weekly”

“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

  • Breaking mortgage, CMBS, and REIT news

  • Quarterly league tables with rankings of B-piece buyers, book runners, and lenders

  • Industry moves and changes in “The Insider“

Data Digest

 

CMBS DELINQUENCY VOLUME

dqdataFP1

 

CMBS SPECIAL SERVICING VOLUME

sschartfp

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

 

RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

AAAspreads

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

 

 

 

REITCafe

  • Challenging Retail Environment Weights on REITs
    Mixed economic news is weighing on retail markets, pushing REIT performance down in 2015. This week, the National Retail Federation announced that back-to-school spending is expected to be down 9.3% in 2015. This news came on the heels of a report from the Commerce Department stating that retail sales declined 0.3%...
     
  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
warehouse-backstage