"An investor in a non-traded REIT wants the security of a steady income stream based on cash flow from the property, while the traded REIT has ups and downs," he says. The difference between the two is a little like the difference between stocks and bonds. "Bonds are safe, while stocks will give the investor appreciation on the stock price."
Between 2000 and 2010, the number of real estate sponsors offering non-traded REITs grew from six to 29, according to BlueVault. Assets under management for the industry are estimated to be $68 billion and represent 20% of the total market capitalization for all publicly-registered REITs. Non-traded REITs are publicly-registered and must file regular reports with the SEC, even though they are not publicly traded.
Publicly-traded REITs may offer a slightly lower yield than non-traded REITs, 6.52% versus 4.63% as of December 31, 2009, but investors need to be careful, says a spokesman For NAREIT. While the share price for the publicly-traded REIT fluctuates from day to day, the property values in the non-traded REIT also fluctuates, albeit not daily, he says.
Not to worry says BlueVault. Dividends on non-traded REITs are declared every quarter and the share price stays the same.
With publicly-traded REITs, yield is a function of share price, says NAREIT. "With a publicly- traded security, when the share price increases, the dividend comes down," the spokesman says.
In its favor, he says, is the fact that a publicly-traded stock is completely liquid. A security not publicly traded doesn't have the same kind of liquidity, he says. "People who favor non-traded investments sometimes do so because there is no volatility," says NAREIT, which is headed by Steve Wechsler. But publicly-traded REITS have the transparency of any other traded security.
But the reason for BlueVault's existence, says its representative, is to increase the transparency of non-traded REITs. There are plenty of analysts to evaluate publicly-traded REITs, but BlueVault, which was launched last fall, is one of the only entities doing this kind of research for the non-traded world, he says. "Most people don't have the time to go through SEC filings to evaluate which REITs to choose," he says. But BlueVault does it for them.
There are 48 non-traded REITs in the US, according to BlueVault. The non-traded REITs are having their 20th anniversary, while publicly-traded REITs have been around since 1960. "The public REITs took off in the mid to late 1990s, while the non-traded REITs came out of the old limited partnerships of the 1980s," says the spokesman.
There is no difference in who buys publicly-traded and non-traded REITs, he says. They are both sold through financial advisors. "But institutions buy more publicly-traded REITs than individuals."
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