With the explosive growth of public non-listed Real Estate Investment Trusts (REITs) during the last two years, investors may be asking themselves: Is this the right product for me? What do I need to know if I’m considering investing in one?
Investor Education is Critical
Advisors recognize that each investor has different goals, different needs and, to go with that, different portfolio designs. Public non-listed REITs aren’t meant for every investor. However, they can fit well into a carefully constructed financial plan for the right investors.
Education is a critical aspect of presenting a public non-listed REIT. Broker dealers should communicate with their advisors about concentration limits for direct investment products, and provide educational resources that support effective sales practices. And financial advisors should clearly understand their client’s lifestyle and retirement goals to determine what products meet those objectives.
Under the careful direction of an informed financial advisor, investing a well-defined percentage of one’s portfolio in public non-listed REITS may help to diversify a portfolio, allowing the investor to realize the distinct benefits of investing in real estate assets. These income-oriented products are designed to provide non-correlation to broader equity markets, and to provide income from the underlying real estate that offers a hedge against inflation
A Bright Future
As the investment benefits of public non-listed REITs are more widely understood, we believe that new product evolution will serve as a catalyst for growth. Over the years, the IPA and its member firms have been working actively with Federal and state regulators to increase product transparency and develop uniform guidelines and sales practices.
Already we’re seeing that record liquidity and product performance continue to fuel interest in direct investments. Over the past two years, 18 public non-listed REITs accounting for $34 billion of original investment value have completed their full investment cycle and provided investors with an average rate of return of approximately 9.5%, according to investment bank Robert A. Stanger & Co. Recent projections show that $15 to $20 billion of maturing public non-listed REITs will provide their investors with attractive liquidity in the coming 24 months.
It’s also important to understand the breadth of the public non-listed REIT community across the American landscape. Based on a review of publicly available
10-K reports filed with the SEC between 2003 and 2013, we know that 38 public non-listed REITs purchased 443 million square feet of commercial real estate assets in the U.S. and abroad, with an investment value of approximately $76 billion. And, by the end of 2013, more than 2 million individual investors held an average of $30,000 in public non-listed REIT shares in their accounts.
These unique products are providing main street investors with direct access to institutional quality real estate assets and management. Through public non-listed REITs, professional real estate managers have the ability to generate above-market yields from the underlying assets over time. In the interim, regular distributions (typically monthly) provide a hedge against potential losses and reduce volatility.
The IPA sees a new age for public non-listed REITs. In partnership with our broker dealer and investment sponsor members, we’re working tirelessly to strengthen education for financial advisors and raise awareness among the investing public. And as our industry grows we remain proactive in our commitment to product and performance transparency.
Kevin M. Hogan is President and Chief Executive Officer at the Investment Program Association.