Nontraded REIT Sales Slump Amid Market Uncertainty

Posted on July 3rd, 2024 at 12:00 PM
Nontraded REIT Sales Slump Amid Market Uncertainty

From the desk of Jim Eccleston at Eccleston Law

InvestmentNews recently covered the sluggish start to nontraded real estate investment trust (REIT) sales in the current year, observing that the slump reflects the challenges facing commercial real estate investors, hinting at potential devaluation in certain REITs, especially net asset value (NAV) products.

Unlike listed REITs, nontraded REITs lack a market-driven valuation mechanism. Instead, they rely on internal appraisals to gauge their real estate assets' worth, a critical factor in determining their overall value.

InvestmentNews shared data from Robert A. Stanger & Co. Inc. The data revealed a significant drop in nontraded REIT sales in the first two months of this year, down to approximately $900 million. This decline, with an annualized rate of $5.4 billion, contrasts sharply with previous years' sales figures.

The deteriorating performance of listed REITs, experiencing declines of over 30 percent, raises concerns about when NAV REITs may follow suit. The impact of rising interest rates and the long-term effects of COVID-19, particularly on office occupancy rates, have exacerbated the challenges facing the commercial real estate market.

Key players like Blackstone Real Estate Income Trust Inc. (BREIT) have witnessed fluctuating net asset values, prompting speculation about potential downward adjustments. Market observers anticipate NAV reductions, with estimates suggesting a potential 30 percent decrease based on prevailing market trends.

According to InvestmentNews, investors are advised to consider divesting their NAV REIT positions before any impending value adjustments. NAV REITs typically offer
limited liquidity programs, making it crucial for financial advisors and their clients to act prudently in light of market uncertainties.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

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