Nontraded REIT Fundraising This Year Surpasses Record

Investors poured $2.2 billion into nontraded real estate investment trusts last month, sending 2013 fundraising past a full-year record and returning money to the industry after payouts from takeovers and public offerings.

Nonlisted equity REITs have raised $12 billion this year, according to a report from the Investment Program Association, an Ellicott City, Maryland-based trade group, and investment bank Robert A. Stanger & Co. That surpasses the previous record of $11.5 billion raised in 2007, said Kevin Gannon, president and managing director at Shrewsbury, New Jersey-based Stanger.

Shareholders who received proceeds from nontraded REITs that were acquired or moved their shares to exchanges this year are putting money into other nonlisted trusts. Such REITs, which have a finite life, don’t trade on stock exchanges and are primarily marketed by brokers to individual investors.

“There’s a mountain of capital freeing up,” Gannon said in a telephone interview. “It’s all because of liquidity.”

An additional $8 billion of nonlisted REIT liquidations have been announced, according to the report.

Some of the biggest real estate deals of the year have involved nontraded REITs. American Realty Capital Properties Inc., a publicly traded single-tenant property landlord, plans to buy the nontraded American Realty Capital Trust IV in a deal valued at $3.1 billion. Both are managed by the same firm.

W.P. Carey Inc., an owner of single-tenant buildings and a sponsor of nonlisted real estate investment trusts, agreed on July 25 to buy one of the companies it manages in a transaction valued at about $2.4 billion.

Sponsor Fees

Nontraded REITs typically are managed by a founding sponsor, which earns fees for services such as overseeing properties and making acquisitions. The REITs raise funds through share sales and acquire properties with the proceeds, with a requirement to eventually return money. Until then, the shares are generally illiquid and investors collect dividend payments.

Investors with income and gains from previous investments are putting money into REITs being marketed by such sponsors as New York-based American Realty Capital and Phoenix-based Cole Real Estate Investments Inc., Gannon said in the report.

Nontraded REITs return money to shareholders through “liquidity events” such as the sale of real estate, a takeover or being listed on a stock exchange. Five liquidity events happened this year through August, returning more than $12 billion to investors, according to the report.

In August 2012, nontraded REIT sponsors raised $1.2 billion, according to the report.

Before it's here, it's on the Bloomberg Terminal.