Beth Mattson-Teig | Dec 13, 2017 Non-traded REITs that have been watching capital flee the sector are expecting to see the tide turn with more investors returning in 2018. Investment banking firm Robert A. Stanger & Co.

is predicting that fundraising for non-traded REITs will reach $4.2 billion this year, which is down from the $4.5 billion the sector raised in 2016 and the lowest level in more than 15 years. There are numerous factors that have contributed to the sharp decline that is well below the peak of $20 billion raised in 2013.

The sector has struggled to move away from historically high fees and adapt to new regulatory rules that have created more transparency on account statements. A new Department of Labor (DOL) Rule also raised questions on whether financial advisors could sell non-traded REITs into tax-exempt accounts, which represent about 40 percent of sales in the sector.

“That uncertainty clouded the picture and caused some firms and reps to pull back on non-traded REIT sales,” says Kevin Gannon, president Sales channels expand Traditionally, the non-traded REIT sector has relied heavily on broker-dealers and registered investment advisors for fundraising. Five years ago, JLL Property Income Trust launched with the first selling agreement with a wirehouse for a non-listed REIT.

The recent arrival of Blackstone opened that wirehouse channel much wider to now include the likes of Merrill Lynch, Morgan Stanley and UBS, among others. “Now we see these large brokerage firms putting other products on their platform, and we expect more,” says Gannon.

Currently, there is about $65 billion to $70 billion in total capital invested in non-traded REITs and Robert A. Stanger is forecasting that it will double to $130 billion to $150 billion over the next several years as a result of Wall Street firms using non-traded REITs to provide non-correlated access to real estate investment opportunities. Two sponsors, KBS and RW Holdings (formerly Rich Uncles), have also introduced online fundraising platforms similar to the crowdfunding model that allows them to raise capital directly from investors without going through brokers or other financial intermediaries. Read more from…

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