Clarion Partners Americas LLC and American Realty Capital have recently
begun pitching a "new breed" of non-traded real estate investment
trusts (REITs), which supposedly addresses the "old breed's"
problems of illiquidity and untimely valuation of units. According to
an Aug. 28
article, the new non-traded REITs will be valued daily and will place a larger
percentage of assets in liquid products like cash and bonds.
Despite these changes, however, a lot of the old problems still exist.
"New" non-traded REITs, like old REITs, aren't listed on
exchange. The amount of units available for repurchase is still capped
around 5 percent. And, the number of units available for redemption is
still up to the trust's management. Additionally, the initial valuation
of the product may be below what investors pay for it, depending on how
much is taken out initially for fees.
"For example, if investors pay $10 per unit for a non-traded REIT
and then, after commissions and various fees, see it listed immediately
at $8.70, that would ‘leave a bad taste in investors' mouths,'"
said Stacey Chitty, a partner with Blue Vault Partners LLC, according to the
InvestmentNews article. (Blue Vault Partners LLC analyzes the non-traded-REIT market.)
For more information about the risks of non-traded REITS, read our posts on
unlisted REITs, and
Apple REIT 10.