Nontraded REITs are like public REITs in that they buy commercial property such as warehouses, apartments and office buildings. The difference is that public REITs raise money by selling shares on the stock market while nontraded REITs raise money directly, mostly from individuals through financial advisers. These individual investors are able to cash out only periodically through the funds’ sponsors. (View Highlight)
Nontraded REITs are part of a booming market for private investments that attracted individuals and institutions eager for higher yields, hot startups and funds that appeared to be less volatile than public markets (View Highlight)
Both funds are up about 10% this year including the rise in share price and dividends. The 26% decline in the MSCI REIT index also includes dividends. Investors in these funds are concerned about declining property values, recent weakness in rents and rising interest rates, which make the income generated by REITs less attractive and increase borrowing costs for the funds. (View Highlight)
Some investors are asking why the value of nontraded REITs continue to rise. For one thing, values of apartment buildings have declined 14% in the past 12 months according to real-estate analytics firm Green Street, while industrial-property values are down 9%. (View Highlight)