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Slump expected to continue for non-traded real estate investment trusts

On Behalf of | Feb 12, 2024 | Financial News

A decline in sales of non-traded real estate investment trusts (REITS) is expected to continue in 2024, according to InvestmentNews.

A non-traded REIT is a private real estate investment vehicle not listed or traded on a public exchange. Non-traded REITs are designed to provide individual investors access to income-producing, institutional-caliber private real estate.

But fundraising for the REITS slumped in 2023 amid falling commercial property prices, higher interest rates, and pullbacks by investors.  Net asset values for nontraded REITS were reported to have fallen by 12% last year, and $9 billion in capital was raised for the funds through September after over $30 billion in each of the previous two years.

The country’s largest nontraded REIT, Blackstone REIT, saw a drop in sales from $15.8 billion in the first nine months of 2022 to $5.8 billion for the same period last year.

The trend is not likely to be reversed in the months ahead, according to experts quoted by InvestmentNews who cited the prospect of more selling by concerned investors.

“Real estate equity REITs are gonna be in trouble,” Howard Lutnick, CEO and chairman of Cantor Fitzgerald told Fox Business. “A lot of them are gonna get wiped out. I think $700 billion could default.  There’s going to be selling.  There’s a generational change in real estate coming. The end of ’24 and all of ’25, we will talk about all of real estate being in a massive change, with $700 billion to $1 trillion in defaults coming. I think it’s going to be a very, very ugly market owning real estate over the next 18 months to two years.”  It has also been reported that some real estate investors could default due to commercial real estate debt being refinanced at higher interest rates.

But the industry has had its share of up-and-down cycles over the past decade, and some experts believe the outlook will become more promising.

“The debt maturities are a serious issue, but the large, publicly traded REITs, as opposed to their non-traded counterparts, could benefit because they have investment-grade balance sheets,” said Brad Thomas, CEO of Wide Moat Research. “That means they should be able to buy some high-quality properties because the smaller developers won’t be able to hang onto them.”

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