What is Ahead for Non-Traded REITs?

Kevin Gannon, president and managing director at Robert A. Stanger & Co.

SAN DIEGO—“Public markets conditions are volatile with REITs trading at a discount to NAV.” Those thoughts were according to Kevin Gannon , president and managing director at Robert A. Stanger & Co. “Traded REITs are the most vulnerable we have seen. Last year, they were traded at big premiums to net asset value. What non-traded securities do is give you the opportunity to invest without the hot money.” Gannon served as a presenter during the opening general session at this year’s ADISA 2016 Spring Symposium . According to Gannon, 2015 showed some bright spots, such as the Smart Shop/Extra Space Storage transaction; the Industrial Income Trust/Global Logistics Properties transaction; and the Griffin-American Healthcare REIT/NorthStar Realty transaction. But he noted that the industry also has some issues hanging over the space. He pointed to RN 15-02, which will be implemented April 16, 2016, as well as the DOL fiduciary rule as examples. He also pointed to NASAA concentration limits being an issue, but noted that while it is on the horizon, it will take a while to be impactful on the space. Gannon also pointed to still having to deal with all the issues from ARC and RCS, however the rest of the space didn’t get tarnished by what was going on in that house, he said. “It is pretty much isolated.” Another black mark on the space is United Development Funding IV, but again, he said, it is isolated and isn’t rolling over into the space. The takeaways? “We think that non-traded REIT market conditions should expect initial contraction in fundraising,” he said. As for other non-traded REIT market conditions, he expects that T-share sales, daily NAV, and interval funds will accelerate, and expects a possible adverse impact of DOL and NASAAR Rules. Lastly, he said “my 2016 estimate is $7-$8 billion plus Interval Funds $1 – $2 billion.” He added: “Interval funds are here to stay.” Interval funds, he said, appeal to a much broader amount of investors and works best as prices go up. “As prices go down, it will be interesting to see how they manage that.” Check back in the next day or so for more coverage from the event.