REIT Sales Through Advisors Rise in 2009

Last year saw the launch of a record 12 new non-traded real-estate investment trusts, according to analysis by Blue Vault Partners, an Atlanta research firm that specializes in this sector.

In total, there are 48 non-traded on the market, although 18 of those are closed to new investors. Some 30 of these investment vehicles are still open to retail investors through financial advisors.

Non-traded REITs now account for $68 billion, a “small but growing” market, said Vee Kimbrell, a managing partner at Blue Vault. Non-traded REITs invest directly in commercial real estate.

The five largest non-traded REITs are all still open to new investment. They include Wells Real Estate Investment Trust II ($5.3 billion in assets); CNL Lifestyle Properties ($2.7 billion); Healthcare Trust of America ($1.7 billion); Corporate Property Associates 17 Global ($1.1 billion); and CB Richard Ellis Realty Trust ($1.1 billion).

The market for publicly traded REITs is much larger, at $271 billion, but non-traded REITs, which are only available to retail investors through advisors, can be more attractive than their traded siblings because non-traded REITs aren’t subject to stock-market fluctuations, Kimbrell said. Both types of REIT report their financial results quarterly and annually to the Securities and Exchange Commission in 10-Q and 10-K filings, respectively. Non-traded REITs are typically priced at $10 per share when they’re first made available, she said.

Non-traded REITs aren’t liquid investments — investors should expect their money to be tied up for eight to 10 years — but these funds are currently paying dividends of 6.52% on average as of Dec. 31, 2009, Kimbrell said, when traded REITs were paying an average 4.53%.

Like annuities, these funds carry surrender charges of as much as 10% of asset value in the first year or two, although investors who need to liquidate their assets in the fourth year should get most of their money back, she said.

Advisors interested in non-traded REITs should look for several factors before recommending a specific fund, Kimbrell said.

“Look for sponsors who have been in the commercial real-estate arena for a long time, those with a track record for taking programs full circle, those with a proven ability to pay dividends, and those that show the resources to make deals rather than just sitting on cash,” she said.

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