Category Archives: REIT Industry Update

How an Attack on a Nontraded REIT Sponsor Made a Hedge Fund Manager $60 Million


How an Attack on a Nontraded REIT Sponsor Made a Hedge Fund Manager $60 Million

Full-length confident person in formal suit. A sketch of New York city and forex chart on the background. A concept of the asset management.

December 18, 2017 | James Sprow | Blue Vault

When Blue Vault began seeing signs that United Development Funding V (UDF V), a nontraded REIT program sponsored by United Development Funding, L.P. (UDF) in Dallas, Texas, was not able to file the 10-K for 2015, it naturally raised suspicions that all was not right with the REIT or the REIT’s sponsor.  A previous nontraded REIT program from UDF, United Development Funding IV (UDF IV) had listed its common shares on the NASDAQ in June 2014, trading in the range of $16 to $20 per share.  When the news broke that the FBI had executed search warrants at UDF’s corporate offices on February 18, 2016, it seemed to confirm that where there was smoke, there was fire, and that rumors and web postings that had accused UDF of being a “Ponzi scheme” might have some merit.  On February 18, 2016, the day of the FBI raid, UDF IV traded below $4 per share, and trading was halted on the NASDAQ. 

On November 28, 2017, United Development Funding, L.P. and its related companies filed a lawsuit in Dallas County, Texas, accusing hedge fund manager J. Kyle Bass and his closely held company Hayman Capital Management, L.P., of perpetrating a “short-and-distort” scheme by spreading false and damaging information about UDF in order to drive down the company’s stock price and profit by covering their short positions by buying shorted shares at much lower prices. 

In the 61-page lawsuit filing, UDF lays out their case in great detail, documenting how, allegedly, J. Kyle Bass conspired to create a false narrative, using false identities, creating websites that purported to uncover negative facts about UDF, and accumulating a huge short position in UDF IV’s shares to profit as the false narratives shook investor confidence and caused panic selling.  Bass’ short position reached over 4 million shares prior to December 10, 2015.  By December 15, 2015, UDF IV’s share price had dropped almost 50% in five days.  By February 12, 2016, UDF IV’s shares were down to $6.67, and trading was halted on the NASDAQ on February 18 with the price below $4 per share.  Bass and his company closed out their massive short position by October 27, 2016, after posting a continual flurry of negative articles about UDF on a website they had created at “” 

The lawsuit filing by UDF vs. J. Kyle Bass makes fascinating reading, almost like a novel.  Blue Vault will continue to follow the case as it proceeds, but for now, it can be said that there are definitely two sides to the United Development Funding story, and there may indeed be a strong case made that an unscrupulous hedge fund manager perpetrated a fraud against a legitimate REIT in order to profit from their fall, harming many investors in the process.    

The full lawsuit document is available at:, using the Case No. CC-17-06253-B.

It will make fascinating holiday reading!

How Interval Funds Compare with Traditional Closed-End Funds


How Interval Funds Compare with Traditional Closed-End Funds

December 7, 2017 | Beth Glavosek | Blue Vault

Balance concept

Last week, we looked at the similarities between closed-end interval funds and mutual funds. Like mutual funds, interval funds offer the transparency, regular valuations, and investor protection elements of the 1940 Act.

As a recap, both interval funds and mutual funds offer shares continuously that are priced daily based on net asset value (NAV). While open-end mutual funds can be redeemed daily, interval funds offer redemptions, as the name implies, at specific intervals such as quarterly or monthly. 

So, what are closed-end funds, and how are they similar and different from interval funds? Closed-end funds first became available in 1893, 30 years before open-ended mutual funds were created. Brought under federal regulation by the 1933 Securities Act, closed-end fund rules were further formalized under the Investment Company Act of 1940. Unlike open-ended funds, closed-end funds have a fixed number of shares to sell. Once the initial public offering is complete, shares may be bought and sold on public exchanges (like the NYSE). Share pricing may be above or below actual underlying NAV, depending upon market demand.

Similarities Between Closed-End Funds and Interval Funds

  • Allocations to illiquid holdings. Both closed-end funds and interval funds may allocate in unlimited amounts to illiquid assets.
  • Daily valuations. Unlike some unlisted securities that don’t provide more frequent valuations, both of these offer transparency through daily pricing.
  • Unrestricted access to both private and public investments. Open-ended funds are only allowed limited access to private investments, whereas closed-end funds and interval funds may allocate freely to private investments.

Differences Between Closed-End Funds and Interval Funds

  • Offering of shares. Interval funds make a continuous offering of shares, while closed-end funds offer shares one time through an initial public offering (IPO).
  • Exchange trading and pricing. Interval funds sell their shares directly to the public with direct redemptions available at NAV. Closed-end fund shares may be bought and sold on an exchange only at market pricing that may be more or less than NAV.
  • Frequency of redemptions. Closed-end fund holders may buy and sell shares at any time based on trading volume. Interval funds usually restrict redemptions typically to quarterly intervals.

In upcoming posts, we’ll continue to look more closely at interval funds and what they have to offer.

An Introduction to Interval Funds


An Introduction to Interval Funds

November 29, 2017 | Beth Glavosek | Blue Vault

Investment on Pocket Watch Face. Time Concept.

Closed-end interval funds are a relatively new way for investors to participate in alternative investments like real estate. But what are they, and how are they different from other real estate offerings?

Interval funds are SEC-registered closed-end funds that provide continuous offerings of their securities. They usually price and sell their shares daily, but do not list them on an exchange. What does this mean from a layperson’s perspective? In general, it means that investors can access the real estate and other alternative asset classes offered traditionally by closed-end funds without committing their money for an undetermined amount of time.

Interval funds are basically very similar to mutual funds, but with a few differences.

What’s in Common with Mutual Funds

Interval funds offer shareholders and financial professionals the transparency, valuations, and investor protection elements of the 1940 Act. Some of the common elements between mutual funds and closed-end interval funds are:

  • Continuous offering of shares. Interval funds are similar to mutual funds in that they continuously offer their shares at a price based on net asset value (NAV). Unlike closed-end funds and other unlisted securities, there is not a single IPO price, and there are not specific periods in which shares are offered for the public to buy.
  • Regular valuations. Interval funds offer daily pricing that is reflective of regular valuations going on behind the scenes, much like mutual funds.
  • Not traded on exchanges. Both are not traded on stock exchanges. That means that you can buy and sell shares directly from the mutual fund or interval fund company without having to go to a stock exchange (like the NYSE).

Differences from Mutual Funds

  • Allocations to illiquid holdings. Mutual funds are NOT allowed to hold more than 15% of their assets in investments that cannot be readily liquidated or sold. This measure is intended to maximize investors’ ability to get in and out of the fund. However, closed-end interval funds are allowed more latitude in this area and may allocate much more to assets that cannot be readily sold.
  • The ability to sell shares daily. While mutual fund holders can buy and sell their shares on a daily basis as much as they like, most interval funds restrict buying and selling to a quarterly basis (some only offer to repurchase semi-annually or annually), and there are limits to selling shares.

In upcoming posts, we’ll look at some other characteristics of closed-end interval funds and why they may make sense for some of today’s investors.

SEC Filings Part 1: What are All of Those Forms?


SEC Filings: What are All of Those Forms? 

November 10, 2017 | Beth Glavosek | Blue Vault

The U.S. Securities and Exchange Commission (SEC) logo hangs on a wall at the SEC headquarters in Washington, in this June 24, 2011, file photo.  As the U.S. Securities and Exchange Commission seeks to become a more formidable force in the courtroom, a string of trial defeats in the past six months has exposed a weak spot: witness testimony. In four of the five trials that the securities regulator recently lost, the jury or judge were not convinced by the witnesses brought in by SEC litigators, according to court transcripts, rulings and interviews with defense lawyers. While there were also other factors influencing the verdicts, some legal experts said the issues with witness credibility were significant and reflect the need for SEC litigators to better vet and prepare their witnesses - or drop cases where they aren't strong enough. To match story Insight USA-SEC/COURT     REUTERS/Jonathan Ernst/Files    (UNITED STATES - Tags: CRIME LAW POLITICS BUSINESS LOGO)

Reading companies’ Securities and Exchange Commission filings probably doesn’t rank as high on the fun factor as say, watching a good movie or going to a concert. However, they do serve an important purpose.

Finding valuable information

The SEC requires public companies, “to disclose meaningful financial and other information to the public, which provides a public source for all investors to use to judge for themselves if a company’s securities are a good investment.”

Common reports that provide clues to a company’s health include:

  • Form 10-Q (contains unaudited quarterly financial statements)
  • Form 10-K (contains audited annual financial statements)
  • Form 8-K (current information including preliminary earnings announcements)
  • Registration statements, including Form S-1. A registration statement is required for new issuers under the Securities Act of 1933. This form number can vary according to the type of company. Nontraded REITs file S-11 statements, while Business Development Companies and Interval Funds file N-2s.

Offering documents – also known as prospectuses – are also filed with the SEC. Prospectuses are usually part of the registration statement or may be filed as supplemental documents or “supplements.” 

Other common filings

A post-effective amendment is required if a continuous offering makes fundamental or material changes after the effective date of the registration statement.

Companies are required to send proxy statements prior to any shareholder meeting, whether an annual or special meeting. The information contained in the statement must be filed with the SEC before soliciting a shareholder vote on any matter related to company business and must disclose all important facts that shareholders need to know in order to vote.

For more information

For additional guidance from the SEC on how to read company filings, check out their Beginner’s Guide to Financial Statements.

In future posts, we’ll look at how you can use SEC filings to find answers to specific questions and concerns you may have before or after investing in a company.

SEC Filings Part 2: A Closer Look at Some Key Issues

The Impact of Amazon on Grocery Sector and Phillips Edison Grocery Center NTRs


The Impact of Amazon on Grocery Sector and Phillips Edison Grocery Center NTRs

October 20, 2017 | James Sprow | Blue Vault


Vegetables at a market stall

The June 16, 2017 announcement of the acquisition of Whole Foods by Amazon sent shock waves through the grocery industry. From June 1 through June 16, Kroger (KR), a grocery chain with 2,460 stores in the U.S., lost 26% in the value of its common stock. SuperValu Inc. (SVU), with 2,000 stores in the U.S., lost 20% in the value of its common stock over that same period. Even Wal-Mart (WMT), not nearly as dependent upon the grocery business, lost 6% in the value of its common stock over those 15 days. Was this attributable to the Amazon announcement? By comparison, the S&P 500 Index was up 0.1% for the same period, indicating that yes, indeed, Amazon’s entry into the grocery business was perceived by investors as damaging to the prospects for several large, publicly traded grocery chains.

For nontraded REIT investors, the two NTRs that are most closely associated with the grocery business are Phillips Edison Grocery Center REITs I (PEGCR I) and II (PEGCR II). These companies have investment strategies that focus on grocery-anchored, neighborhood and community shopping centers “that have a mix of creditworthy national and regional retailers that sell necessity-based goods and services in strong demographic markets throughout the United States” according to their annual reports.

How dependent are the two NTRs advised by Phillips Edison NTR and sponsored by Phillips Edison Limited Partnership on the lease revenues from large grocery chains such as Kroger? The following table gives an overview of the NTR portfolios and their tenant concentrations.

Screen Shot 2017-10-20 at 7.38.15 AM
Source:  SNL


The Phillips Edison NTRs are well-diversified in their tenant mix, with no single tenant contributing more than 8.8% of the REIT’s lease revenues. PEGCR I has 52.9% of its leased square feet in the grocery industry as of June 30, 2017, and that percentage was 52.7% for PEGCR II. The weighted average remaining lease terms for PEGCR I and PEGCR II were 5.4 and 5.8 years, respectively as of Q2 2017. As with other shopping centers, however, the economic success of the anchor stores has spill-over effects on other tenants.

The most recent analyst ratings for Kroger according to were upgrades, but Kroger’s stock is down 32% from June to October 17. Clearly, investor confidence in the long-term prospects for Kroger and other grocery chains has been shaken.

Necessity-based retailing, such as the grocery-anchored properties in the Phillips Edison NTR portfolios, has been one bright spot in the retail sector over the last several years. While other retailers have been reeling from the impacts of e-commerce in general and Amazon specifically, the grocery business has been spared some of the worst effects due to the nature of its products and their customers’ preferences for in-store shopping. However, most grocery retailers are also responding to the e-commerce trend by adding on-line shopping and pick-up and delivery options to their platforms. Amazon’s entry into the sector through its acquisition of Whole Foods will likely accelerate this trend.

On May 9, 2017, the board of directors of PEGC REIT I reaffirmed its estimated value per share of common stock of $10.20 based substantially on the estimated market value of its portfolio of real estate properties as of March 31, 2017, up from its $10.00 offering price. The board of directors of PEGC REIT II established an estimated NAV per share of $22.75 on May 9, 2017. The stock was originally offered at $25.00 per share.

On September 1, 2017, Phillips Edison Grocery Center REITs I and II entered into agreements that terminated all remaining contractual and economic relationships with American Realty Capital.



Learn more about Phillips Edison & Company on the Blue Vault Sponsor Focus page.

Click Here



Phillips Edison Grocery Center REIT I Internalizes Management

Phillips Edison Grocery Center REIT I Shareholders Approve Internalization

Phillips Edison Expands Holdings With Illinois Retail Buy


America’s Data Centers Deliver Results


America’s Data Centers Deliver Results

October 13, 2017 | Beth Glavosek | Blue Vault

Data Center with 4 rows of servers

Given the destruction caused by recent hurricanes, it’s impressive to learn that internet service and the cloud remained intact and resilient, even as millions of people lost power or saw their homes and businesses flooded.[1]

What makes this connectivity possible, even after catastrophic storms, is the humble data center. Data centers house and maintain back-end information technology (IT) systems and data stores—mainframes, servers and databases – on behalf of major enterprises. As one technology executive puts it, “Data centers, to me, are 362 days of boredom [each year].” But, when they’re needed most is when they really shine.

Where are America’s data centers?

According to Data Center Knowledge, data centers historically have been located in remote locations because of cities’ expensive land and energy costs. However, they have been moving closer to end users in order to reduce ‘lag time’ in connectivity. After a push to build data centers closer to metro areas such as New York City, Los Angeles and San Francisco where there is a large concentration of customers – known as the ‘data center clustering effect’ – cloud computing gained momentum and data centers moved to locations where their tenants’ businesses were located, often outside of large cities. Today, data centers are increasingly being built in secondary and tertiary markets.[2]

How data centers weather disaster

Data centers are specifically designed to withstand external forces like storms or ice. In order to maintain industry certification through the Seattle-based Uptime Institute, they must demonstrate that they can keep running after a “plug is pulled.” When electricity is lost, data centers have powerful diesel generators that kick into gear. Other important considerations are building above the 500-year floodplain and having staff who are prepared to shelter in place. Sites are frequently stocked with thousands of gallons of diesel fuel for their generators, food and water, emergency medical kits, showers, bunkrooms and flares.[3]

Investing in data centers

According to the National Association of Real Estate Investment Trusts (NAREIT), there are six REITs that are currently focused on data center holdings. According to NAREIT, data centers led the entire REIT market’s performance in the first four months of 2017 with an 18.03% total return. Forbes reported in September that the average year-to-date total return for all Data Center REITs was 29.1%. Among nontraded REITs, Carter Validus Mission Critical REITs I and II have focused their property investments in data centers as well as health care facilities. The two nontraded REITs own 20 data centers each.

As e-commerce and other driving factors continue to fuel the demand for data, it’s clear that data centers will continue to play a very important role in business continuity and keeping America running even through challenging circumstances.

[1] James Glanz, “How the Internet Kept Humming During 2 Hurricanes,” The New York Times, September 18, 2017.

[2] Loudon Blair, “Finding Strength in Numbers: The Data Center Clustering Effect,” Data Center Knowledge, October 11, 2017.

[3] James Glanz, “How the Internet Kept Humming During 2 Hurricanes,” The New York Times, September 18, 2017.

Do We Need to Re-Think Inflation Expectations?


Do We Need to Re-Think Inflation Expectations?

October 12, 2017 | James Sprow | Blue Vault

Growth Rise Up Chart

One big question that Fed officials and economists generally are grappling with is “What’s happened to inflation?” The standard benchmark that Federal Reserve policy makers have used is an annual consumer price index rising at 2%. The persistence of inflation rates below the 2% target has observers scratching their heads and considering the possibility that fundamental changes in the U.S. economy, and indeed in the world economy, have rendered the 2% expectation obsolete.

In an article in, Zachary Karabell states, “The economic truths of the past may or may not be true anymore.” As the economy improves and companies start hiring, unemployment falls and wages are supposed to go up, pushing up prices and increasing inflation. The Federal Reserve has recently been assuming that some economic conditions were simply taking longer to “return to normal.” Both Karabell and members of the Federal Reserve’s Open Market Committee are asking, “What if the stubborn lack of inflation is not just a short-term blip?”  

The minutes of the Federal Open Market Committee’s September meeting reveal much discussion and even some disagreement about the long-term trajectory of expected inflation:

“Based on the available data, PCE price inflation over the 12 months ending in August was estimated to be about 1-1/2 percent, remaining below the Committee’s longer-run objective. In their review of the recent data and the outlook for inflation, participants discussed a number of factors that could be contributing to the low readings on consumer prices this year and weighed the extent to which those factors might be transitory or could prove more persistent.”

“Some participants discussed the possibility that secular trends, such as the influence of technological innovations on competition and business pricing, also might have been muting inflationary pressures and could be intensifying. It was noted that other advanced economies were also experiencing low inflation, which might suggest that common global factors could be contributing to persistence of below-target inflation in the United States and abroad.”

For now, the Fed will continue to watch their two key indicators, the unemployment rate and inflation, and they expect economic conditions to “evolve in a manner that would warrant gradual increases in the federal funds rate and that the federal funds rate was likely to remain, for some time, below levels that were expected to prevail in the longer run.” 

Clearly, if the fundamental forces that influence the rate of long-term inflation, both in the U.S. and globally, have changed, then the conventional thinking of the Fed and the financial markets may need to adjust to a new reality of lower long-term trends in inflation.

SEC Working Toward a Proposal on a New Fiduciary Rule


SEC Working Toward a Proposal on a New Fiduciary Rule

October 4, 2107 | Beth Glavosek | Blue Vault

United States Capitol Building, Washington, DC

On Wednesday, October 4, in a Capitol Hill appearance, Securities and Exchange Commission (SEC) Chairman Jay Clayton told lawmakers that the agency is drafting its own proposal for a fiduciary rule, according to Investment News.

The commission has been accepting comments, and Clayton told the House Financial Services committee that, “We’re going to work with the Department of Labor. However, if this were easy, it would already have been fixed.”

According to Investment News and Barron’s, Clayton reiterated past comments insisting that such a rule must preserve investors’ choice to use a broker or advisor, be clear, apply to retirement and non-retirement accounts, and involve cooperation between the SEC and the Labor Department.

Clayton said that he’s confident that the SEC can create a rule that meets those standards and protects investors in a way which they understand. While not providing a timeframe, he reassured Republican lawmakers that opponents’ concerns about the DOL fiduciary rule will be addressed.



Delay in Fiduciary Rule Implementation Causing Issues

ALERT: DOL Fiduciary Rule Delay Published

House committees ready two assaults on DOL fiduciary rule this week


The Art of Wholesaling


The Art of Wholesaling

September 28, 2017 | Beth Glavosek | Blue Vault

Euro coins. Euro money. Euro currency.Coins stacked on each othe

In an upcoming blog series, Blue Vault is going to examine the role of the wholesaler in the financial services industry.

It’s been said that wholesalers are the ‘muscle’ behind the billions of dollars of fund shares sold through advisors and bought by investors each year. A wholesaler is someone who represents a product sponsor and its offerings. Known for being ‘road warriors’ who travel the country, wholesalers visit advisors and Broker Dealers to educate them about the benefits of the sponsor’s offerings and the unique value they bring to the marketplace of investments.

According to Evan Cooper of Investment News, “knocking on advisors’ doors is a tough (although potentially very lucrative) job that typically gets little attention and not as much respect as it deserves.”

So, what does a wholesaler do, in addition to convincing advisors and Broker Dealers to add an offering to their sales platforms? Because they’re on the front lines of representing product sponsors, wholesalers also must:

  • Understand the offering thoroughly and how it can benefit investor clients
  • Have thorough knowledge of competing products and how their offering stacks up against them
  • Provide value-added knowledge about the marketplace and what it takes for an advisor to meet client needs
  • Collaborate and share educational content, including offering opportunities for advisors of all kinds to get together and share ideas

In the coming weeks, we’ll talk with some successful wholesalers and learn more about their habits, what their typical days are like, how they stay at the top of their game, and what it takes to succeed in the world of financial wholesaling.

How Are Markets Rebounding from Harvey?


How Are Markets Rebounding from Harvey?

September 22, 2017 | Beth Glavosek | Blue Vault


As the city of Houston continues its recovery after Hurricane Harvey and its catastrophic flooding, analysts are starting to size up the long-term implications on the real estate market, real estate investments, and the overall economy.

Here are a couple of areas to watch:

CMBS Offerings and Office Sector
Last month, Bloomberg Markets reported some key findings on the hurricane’s impact on commercial mortgage-backed securities (CMBS). Morgan Stanley estimates that Houston-area offices, malls, and hotels support nearly $9 billion of the loans packaged since the financial crisis. Flood damage could jeopardize the payoff of about $1.13 billion in loans maturing in the next 12 months, according to the Bloomberg article and analysts at Morningstar Credit Ratings.

In the immediate term, there are elevated expenses for office owners and landlords related to cleanup and any damage not covered by insurance, according to Bloomberg Intelligence analyst Jeffrey Langbaum. There shouldn’t, however, be any near-term impact on revenue for buildings if they are leased but, “if companies end up moving, or go under, there will be longer-term disruption,” he says. Large office buildings could struggle if they aren’t able to show or renovate their spaces in preparation for lease expirations.

REITs with significant exposure to Houston could see some effects if there are near-term tenant and lease risks related to the above issues. However, according to Blue Vault’s research, only one nontraded REIT has suffered a casualty loss due to a hurricane, and that was a relatively minor insurance claim of just a few million dollars for a large portfolio. Because most nontraded REITs have portfolios that span the nation and even the world, Blue Vault believes that the diversification available in these portfolios offers great protection against localized disasters. 

Energy and Fuels
According to IHS Markit, an information and analytics company whose data includes the energy industry, 15 of the 20 affected refineries in the Gulf Coast energy complex were at or near normal operating rates as of September 19. While around 1.0 million b/d of distillation capacity (5% of US total) is estimated to still be offline, steady progress appears to have been made to be operating normally in the near future. IHS Markit has observed that refined product markets have calmed considerably and that the NYMEX RBOB spot price was essentially back to its pre-Harvey level.


How Commercial Real Estate Mitigates Disasters


How Commercial Real Estate Mitigates Disasters

September 15, 2017 | Beth Glavosek | Blue Vault


Whenever a natural disaster strikes, investors in commercial properties may wonder how their assets are being managed and protected. According to the Whole Building Design Guide, a program of the National Institute of Building Sciences, “the most successful way to mitigate losses of life, property, and function is to design buildings that are disaster-resistant.”

Ideally, a building’s resistance to disaster should be incorporated into the project planning, design, and development at the earliest possible stage so that design and material decisions can be based on an integrated “whole building approach,” according to the guide. Later in the building’s life cycle, risks from natural hazards may be addressed when renovation projects and repairs of the existing structure occur.

The term ‘building resilience’ describes a commercial building’s ability to withstand the rigors of nature and possibly man-made stresses. According to the Building Owners and Managers Association International, “Resiliency begins with ensuring that newly constructed buildings, alterations, additions and major renovations to existing buildings are constructed in accordance with applicable modern building codes, with the design focusing on the adaptability of the building over its life cycle to evolve with changes occurring in both the built and natural environment. Proper planning and design can significantly reduce the amount of damage sustained during a disaster, which in turn will lead to shorter recovery periods, increase business continuity and expedite the community’s return to normal.”

In other words, investors in commercial properties can take heart in knowing that today’s best practices include continuous attention to upgrades and standards that will allow buildings to better withstand the challenges that may come along due to weather or other hazards.

Emergency Preparedness: Some Best Practices for Property Managers


Emergency Preparedness: Some Best Practices for Property Managers

September 6, 2017 | Beth Glavosek | Blue Vault



As we saw last week with Hurricane Harvey and now with Irma headed toward south Florida, Mother Nature can be relentless. When it comes to protecting property – whether personal or business-related – having a current emergency preparedness plan in place helps preserve human life and minimize damage as much as possible.

When it comes to protecting commercial real estate (CRE), property managers usually have the responsibility for preparing emergency plans. Such plans protect the safety of employees who work in the buildings as well as the buildings themselves as much as possible.

According to the Institute of Real Estate Management (IREM), the following are just some of the key components for CRE disaster planning:

Use all of Modes of Crisis Communications

When there is a disaster of any kind, one of the most important things to do is communicate with tenants, residents, staff, and clients to ensure everyone’s safety and security. IREM says that crisis responders should maximize use of the variety of options available for providing immediate notifications and ongoing updates. These options include: automated mass notifications that include text messages, phone messages (mobile, home, work or other phones), and e-mail; toll-free phone numbers with pre-recorded messages; online options (like Twitter, Facebook, or other social media); and backup phone systems that include mobile and satellite options.

Follow Business Continuity Plans

Effective business continuity plans contain multiple facets, but perhaps the most critical are protecting IT systems with adequate backups, hard copies, and vendor arrangements, as well as protecting the business’s contents, inventory, and production processes with adequate insurance. The Insurance Institute for Business and Home Safety provides a free toolkit that covers the array of components that a business continuity plan should have.

Take Protective Actions for Life Safety

An emergency plan should include detailed instructions on how to carry out protective actions to keep peoples’ lives safe. According to, protective actions for life safety include Evacuation, Sheltering, Shelter-In-Place, and Lockdown. Some actions will be more appropriate for certain situations than others. For example, in the case of hazards like fire, chemical spills, bomb threats, or suspicious packages, building occupants should be evacuated or relocated to safety. Other incidents like tornadoes would require that everyone be moved to the strongest part of the building and away from exterior glass. If a transportation accident nearby causes a release of chemicals, the fire department may warn to “shelter-in-place.” Lockdowns are appropriate when dealing with human intruders.

In future posts, we’ll look at how property managers get damaged buildings up and running again, as well as ways to protect investors’ assets.

What’s Next for Houston’s Downtown Business District?


What’s Next for Houston’s Downtown Business District?

August 31, 2017 | Beth Glavosek | Blue Vault

Houston Flood adobe

As the nation witnesses the historic and catastrophic flooding in the city of Houston, one question on the minds of many is, “What will it take to recover and rebuild?”

According to the Houston Downtown Management District (HDMD), the city’s downtown area is headquarters to several prominent firms, including nine Fortune 500 companies, as well as more than 3,000 businesses housed in over 50 million square feet of office space. Houston’s downtown is one of the 10 largest CBDs in the nation with 150,000 people employed there.

While Hurricane Harvey created conditions that are impossible to fully prepare for, fortunately, and not surprisingly, it appears that the city has kept a detailed and current emergency response plan in place for quite some time. The plan, updated in April 2017, details specific steps for property managers and building owners to take in the event of a rapidly evolving storm and flooding.

A representative for HDMD issued a statement on August 30 saying, ”Over the next days, weeks and months, we will be working with our Downtown stakeholders to support the recovery of our great City. Overall, Downtown has fared well and is stable. While conditions are improving, we realize that many areas of Houston still have high water and/or no power.”

From a tactical standpoint, after the rain diminishes, key personnel will be expected to survey property damage and report their findings immediately to the HDMD, even if there is no damage. The HDMD will continue to issue advisories of roadway conditions for employees. Once properties are secured from hazards like falling glass and impassable sidewalks, and adequate water pressure and power are available, property managers can immediately proceed with repair work to be done in off-peak hours. Permits to ensure compliance with city standards are mandatory.

In future blog posts, we’ll look at disaster preparedness best practices for commercial property owners, as well as information that investors in commercial real estate might want to know when disaster strikes.

Ways to Help

Our hearts go out to our fellow citizens in the great state of Texas. We are praying for them! Donations to help with their relief and recovery may be made at one of the following:

Samaritan’s Purse International Relief 
Southern Baptists of Texas Convention

Have You Been Tracking Sales Lately?


Have You Been Tracking Sales Lately?

August 23, 2017 | Beth Glavosek | Blue Vault

Growth Rise Up Chart

If you’ve been following sales trends in alternative investments, you’ve likely noticed that sales are down. After reporting sales of $350.9 million in June, nontraded REIT (NTR) sponsors’ monthly total for July fell to $245.8 million – a difference of 30%.

Business Development Companies (BDCs), nonlisted Interval Funds, and nonlisted Closed-End Funds were also down in the month of July. Private Placement sales declined as well, albeit only by a very modest -0.7%.


Sales in Millions June 2017 July 2017 % Change
NTRs $350.9 $245.8 -30%
BDCs $74.3 $42.2 -43%
Nonlisted Interval Funds and nonlisted Closed-End Funds $133.3 $111.8 -16%
Private Placements $150.5 $149.4 -0.7%


The trailing six-month average for NTR sales was $371 million as of June 30, 2017, while BDCs’ trailing six-month average was $66 million.

So, what accounts for the decline in sales? Blue Vault’s Director of Research James Sprow notes that a drop in sales during the summer is not unusual for the industry and was also observed in 2016. “Average monthly NTR sales in 2016 for June, July and August dropped 29% from the NTR sales for the previous three months. So far in 2017, the average sales in June and July were 29% below the average for the previous three months, so it’s pretty consistent to see a drop in the summer months.”

Does anyone know what’s on the horizon for alternative investment sales? “The industry is continuing to evolve, just like every other industry. We’re seeing new products like nontraded interval funds and nontraded closed end funds. There’s also the latest nontraded REIT that just broke escrow in January and has dominated the NTR sales numbers since then, the Blackstone REIT. We’re seeing lower fees and multiple share classes as sponsors adapt to the latest regulatory issues, so it’s a challenge just to keep up with all of the changes,” Sprow says.

Who’s Who in Alternative Investment Offerings?


Who’s Who in Alternative Investment Offerings?

August 16, 2017 | Beth Glavosek | Blue Vault

Stock market abstract background

Investors looking at prospectuses for nontraded REITs (NTRs), Business Development Companies (BDCs), and other alternative investments might see a diagram, organization chart, or other explanation of the entities involved in the offering. But, how can the reader make sense of their roles, especially if some of those entities have the same name or are the same company?

Blue Vault looked at a sampling of organization charts from five NTR offerings, noting that the Sponsor, Advisor, Property Manager and Dealer Managers are in almost all cases (4 of 5) totally owned by the Sponsor. In other words, the same people who run the Sponsor are also running the Advisor, Property Manager and Dealer Manager in those cases. 

We wondered if the definitions of these roles are uniform across the industry, so we asked the Head of Due Diligence for a major NTR sponsor for some basic descriptions. The following is a “cheat sheet” of terms that he identified that might help untangle some of these legal relationships.

Sponsor: The sponsor is essentially the owner of an NTR’s External Advisor, Property Manager, and Dealer Manager. “In our case, the sponsor is a trade name (not a legal entity itself) to identify a group of affiliated companies that are involved with different activities related to our NTRs. The companies within this umbrella are all separate legal entities,” he says. He notes that most sponsors are private companies owned by individual stakeholders.

Advisor: Unless an internalization transaction has occurred, the NTR itself does not have any employees and is managed by an “external” advisor. Here are some important points to remember about the advisor:

  • It’s a separate legal entity responsible for managing the NTR’s day-to-day affairs. It’s owned by the sponsor and not by the NTR itself.
  • Its officers and key personnel are typically employees of the sponsor.
  • It’s connected to the NTR through an advisory agreement, which can usually be terminated by either party under certain conditions.
  • The fees earned by the advisor for managing the NTR (i.e., advisory, acquisition, financing, property management, leasing, disposition, performance, etc.) roll up to the sponsor since it owns the advisor. 

Property Manager: NTRs acquire real estate properties that require some degree of management in order to properly maintain them. Most, if not all, NTRs have a separate legal entity responsible for managing the NTR’s properties. Some NTRs pay a separate property management fee for these services, while others receive property management services under the advisory agreement. In addition, the affiliated property manager for a few sponsors’ NTRs may contract out property management responsibilities to an unaffiliated third-party, but the affiliated manager still charges an “oversight fee” for overseeing the activities of the unaffiliated manager. The NTR compensates the unaffiliated manager for its services, as well as the affiliated property manager for its oversight.     

Dealer Manager: Raising capital for an NTR requires selling registered securities through FINRA-licensed salespeople who are associated with a FINRA-registered broker/dealer. The FINRA-registered broker/dealer is referred to as the dealer manager. The dealer manager employs the people in the organization whose job requires them to discuss NTR programs (i.e., internal/external sales, National Accounts, Due Diligence, etc.) and holds their requisite securities licenses. “Most sponsors own their own broker/dealer, but some sponsors contract with an unaffiliated dealer manager for those services,” our due diligence expert notes. “In those cases, the salespeople are not in any way employees of the sponsor’s dealer manager, but are compensated by the sponsor for raising capital through the NTR’s dealer manager fee.”  

Taxable REIT Subsidiary (TRS): A TRS is sometimes used to manage properties or contract out the management of properties. If the IRS deems some of its activities taxable, the NTR can create a subsidiary to carry out those activities. Through a TRS, the NTR may enter into management agreements with third-party management companies in order to maintain REIT qualification status


The Latest on the DOL Fiduciary Rule


The Latest on the DOL Fiduciary Rule

August 10, 2017 | Beth Glavosek | Blue Vault

United States Capitol Building, Washington, DC

It looks like there’s yet another reprieve on the final implementation of the Department of Labor (DOL) Fiduciary Rule. After sitting on the back burner while President Trump called for a reassessment of the ruling, the DOL earlier this year said that it wouldn’t start full enforcement until January 1, 2018. Now the date has moved to July 1, 2019 – a full 18 months later. Investment News reported on August 9 that the DOL submitted this proposal to the Office of Management and Budget (OMB), and the OMB must review and approve the proposal before it can go into effect. The delay itself could require its own rule making process, according to the article.[1]

Industry groups are lauding the proposal. Dale Brown, President & CEO of the Financial Services Institute, says, “This proposed delay represents an important step in protecting Main Street Americans’ access to retirement planning advice, products and services. While the delay is significant, it is critical that the DOL uses the 18 months to coordinate with regulators, in particular the SEC, to simplify and streamline the rule.” He goes on to say, “We are already seeing the effects of the rule limiting investor choice and pushing retirement savings advice out of those who need it most. We stand ready to work with the DOL, SEC and others to put in place a best interest standard that protects investors, while not denying quality, affordable financial advice to hard-working Americans.”[2]

Other financial industry groups concur with Brown’s assessment about the effect of the rule so far. The Insured Retirement Institute (IRI), a trade association of insurance companies, asset managers, and brokerage firms, estimates that approximately 155,000 accounts have been ‘orphaned’ (accounts are no longer serviced by an advisor, leaving investors on their own) since parts of the rule went into effect on June 9, 2017.[3]

The American Council of Life Insurers (ACLI) stated that the regulation has caused “significant market changes that now deny consumers access to advice” and that the rule’s overly broad definition of a fiduciary constrains education and information about retirement planning options, and causes a bias against commission-based compensation. This bias restricts access to annuities, the only product available in the marketplace that provides guaranteed lifetime income, according to the ACLI.[4]

Blue Vault will continue to report on the latest information and perspectives available as this issue continues to evolve.

[1] Mark Schoeff Jr., “DOL seeks to delay fiduciary rule until July 2019,” Investment News, August 9, 2017.

[2] FSI Statement on DOL Proposal of Further Delay of Fiduciary Rule,” FSI, August 9, 2017.

[3] “IRI Submits New Data Exposing Detrimental Impact of DOL Fiduciary Rule,” Insured Retirement Institute, August 7, 2017.

[4] “ACLI Urges Labor Department to Revoke and Replace Regulation Harmful to Retirement Savers,” ACLI, August 7, 2017.


Sector Focus: Necessity Retail


Sector Focus: Necessity Retail

Passage in multilevel shopping mall


August 1, 2017 | Beth Glavosek | Blue Vault

Despite the huge rise and popularity of online shopping, there’s still a need for bricks and mortar stores. According to a recent study, by 2025, the share of online grocery spending could reach 20% of the total market, representing $100 billion in sales. However, as one supermarket executive puts it, “You can’t forsake the 80% of consumers who are shopping in your physical stores.”[1]

Thus, the need for what is known necessity-based real estate, or necessity retail, persists.

Population growth means consumer growth

On May 7, 2017, the U.S. population clock was projected to cross the 325 million threshold. By 2060, the total population is expected to reach nearly 417 million.[2]

A growth in the population means growth in both current and future consumers. While economic conditions may dictate how much people have available to spend on luxury or nonessential items, there will always be a need for everyday goods and services, whether it’s food, apparel, appliances, or personal care items.

Bricks and mortar still relevant

While major grocery chains frequently provide the ideal anchor for a desirable retail asset, other popular retailers include discount clothing and shoe stores, warehouse stores (bulk shopping), sporting goods, and specialty or organic food stores.

According to the National Retail Foundation, despite the dot-com boom of 20 years ago and scales tipping slightly toward e-commerce, the impact is not readily noticeable in STORES Magazine’s annual list of the Top 100 retailers.[3] According to the report, the nation’s largest mass market retailers all still rank in the top 10, including Walmart, Costco, and Target. “The remaining top 10 retailers are arranged in pairs: two traditional supermarket operators (#2 Kroger and #10 Albertsons); two home improvement retailers (#4 The Home Depot and # 9 Lowe’s); and two drugstore chains (# 5 CVS and #6 Walgreens/Boots Alliance),” the report says.

Their success points to the fact that consumers are still pushing shopping carts and not just filling them online. Kiplinger has also reported that six mega retailers are still standing up to online giants like Amazon.

In conclusion, the need for destination-based, necessity-driven real estate will likely persist even in the age of point-and-click. After all, it’s difficult to try on those pants you’ve been eyeing or sniff the freshness of the produce from the comfort of your living room.

[1] Becky Schilling, “Are you ready for the digitally engaged shopper?” Supermarket News, January 30, 2017.

[2] U.S. Census Bureau, May 5, 2017.

[3] STORES Magazine, June 26, 2017.

Sector Focus: A Look at Senior Adult Housing


Sector Focus: A Look at Senior Adult Housing

July 26, 2017 | Beth Glavosek | Blue Vault

An attractive senior couple at home on the couch together. Isolated on white.

It’s no secret that Baby Boomers make up a significant portion of the U.S. population. Born between 1946 and 1964, Baby Boomers are now reaching the ages of 53 to 71. As this group continues to age, the number of Americans ages 65 and older is projected to more than double from 46 million today to over 98 million by 2060, and the 65-and-older age group’s share of the total population will rise to nearly 24% from 15%.[1]

As this segment of society continues to expand, a corresponding need for senior adult housing will increase. In fact, senior housing has been a hot sector in real estate in recent years.

Outlook for the industry

Despite concerns about over-building in certain markets, there’s still an appetite for senior housing among many investors. In its annual U.S. Seniors Housing & Care Investor Survey and Trends Report that polls investors, real estate giant CBRE found that nearly 60% of survey respondents expected to increase the size of their senior living portfolios in 2017 compared with 47% polled in 2016.

In the report, CBRE professionals said that they expect valuations to remain stable in 2017 with a strong long-term outlook. “The industry’s fundamentals suggest the necessity for more capacity over the long term, with short-term oversupply in select markets becoming more likely as a result of recent record-setting construction levels,” according to the report.


Senior housing has been a solid performer. In fact, when looking back over one-, three-, five-, and 10-year periods, performance is in the double digits. NCREIF reports that at the end of the first quarter of 2017, one-year total returns were 12.05%; three-year returns were 14.87%; five-year returns were 14.78%; and 10-year returns were 11.13%.

Hot trends

CBRE notes that Investor interest seems to be gravitating to more lifestyle-focused segments of senior housing, with 40% of its survey respondents preferring independent living investment opportunities over assisted living or more health care-focused properties.

Hospitality is a major trend in senior living communities. Residents are often seeking concierge-style services including room service, car service, personal shoppers and one-on-one educational and cultural experiences.[2] Dining has gone beyond the traditional cafeteria-style meal. Seniors today want an appealing range of choices – whether it’s chef inspired meals, gelato, gourmet coffee, or even food trucks.

Providing memory care is more important than ever as diagnoses of Alzheimer’s disease and dementia are becoming more common. Industry experts say that memory care must be a component of senior living facilities if they are to meet a complete range of seniors’ needs.

Flik Lifestyles explains some other hot trends to watch in its Super Trends in Senior Living report.

[1] Mark Mather, “Fact Sheet: Aging in the United States,” Population Reference Bureau.
[2] Super Trends in Senior Living, Flik Lifestyles.

A Primer on Student Housing


A Primer on Student Housing

July 14, 2017 | by Beth Glavosek | Blue Vault

Tablet touch computer gadget on wooden table, vintage look

Did you know that student housing is a robust and still-developing sector of real estate?

Some real estate operators are acquiring older student housing developments and modernizing them, while others are building brand-new housing that meets the expectations of today’s students.

Here’s a quick look at this sector and its opportunities.

Who invests in student housing?

According to a New York Times article from earlier this year, private developers, REITs and private equity firms make up the majority of student housing investors. It is still considered a relatively new asset class. Institutional investors find its growth prospects, steady revenue stream from rents, and comparatively high capitalization rates appealing.[1]

Why it’s in demand

Experts in the sector believe that a combination of higher college enrollment and tight supply have driven a need to develop and invest in more housing. According to CoStar, cash-strapped public universities are unable to fund new dormitory development due to state budget cuts. In addition, many Millennials plan to pursue post-graduate schooling, which extends the demand for student housing for a longer period of time beyond the undergraduate years.[2]

Not your parents’ (or your) dorm room

It’s probably no surprise that today’s students have higher expectations for comfort and convenience than previous generations. While those of a certain age might remember cramped accommodations without air conditioning and in sore need of repairs or updating, thankfully, students today have things a bit better. According to National Real Estate Investor, certain features are becoming the norm: substantial study space, recreational spaces, and places where students can meet and talk. Some student properties even offer fitness centers, game rooms, lounges, outdoor spaces, and sports simulators.[3]

In summary, the student housing sector appears to be healthy and is benefiting from high occupancy rates and high demand.

[1] Vivian Marino, “A Rush to Meet Rising Demand, and Expectations, for Student Housing,” The New York Times, February 28, 2017.

[2] Randyl Drummer, “Institutional Investors Coming Around to Student Housing, Sector Seen as Recession-Resistant Alternative to Apts.,” CoStar, March 30, 2017.

[3] Diana Bell, “What to Expect from Student Housing in 2017,” National Real Estate Investor, January 4, 2017.

A Basic Overview of Commercial Real Estate Leases


A Basic Overview of Commercial Real Estate Leases

July 7, 2017 | by Beth Glavosek | Blue Vault

Close up of businessman holding city model in hands

Occupancy and tenant relationships are an important part of commercial real estate ownership. The structures of tenant leases can vary, depending upon who is expected to bear certain costs.

According to Certified Commercial Investment Member (CCIM) authors, versions of net leases have evolved through the years[1]. A net lease refers to an arrangement in which the tenant pays all or some of a property’s operating costs in addition to rent.

The following is a brief overview of some key types of commercial real estate leases, in descending order of the level of obligation for the tenant.

  • Bond Lease: in addition to monthly rent, tenant is responsible for ALL operating expenses, maintenance, repairs, and replacements for the entire building and site in the case of casualty losses or acts of God. This is the most extreme form of Triple Net Lease.
  • Triple Net Lease: in addition to rent, tenant is responsible for all of the property’s expenses, both fixed and operating, except that capital expenditures may be limited in the final months of the lease
  • NN Lease: in addition to rent, tenant is responsible for a good portion of the property’s expenses, except the landlord covers structural components, such as the roof, bearing walls, and foundation
  • Modified Net (or Modified Gross) Lease: in addition to rent, tenant pays for utilities, interior maintenance, interior repairs, and insurance. The landlord pays for everything else, including real estate property taxes.

According to NAIOP’s Development magazine, choosing the type of lease to negotiate on the spectrum from net to gross is ultimately about how to allocate certain economic risks between the landlord and tenants. “With the gross rent model, the landlord bears all the risk that actual operating expenses may exceed projected amounts,” says author Richard R. Spore III. “Of course, the tenant conversely bears all the risk that operating expenses may be less than anticipated, resulting in a higher than expected net operating income for the landlord. In other words, with the gross rent model, landlords and tenants make a bet on levels of future building operating expenses.”[2]

Triple Net Leases (NNN) have increased in popularity because the risk of operating expenses increasing over the life of the lease can be shifted to the tenants. NAIOP’s summer edition of its Development magazine offers a more in-depth look at these types of leases.

[1] Letty M. Bierschenk, CCIM, Kurt R. Bierschenk, CCIM, and William C. Bierschenk, CCIM, “Singling Out Triple-Net Leases,” CIRE Magazine, May/June 2017.

[2] Richard R. Spore III, “The Benefits and Risks of Triple Net Leases,” Development, Summer 2017.

What are Cap Rates?


What are Cap Rates?

June 30, 2017 | by Beth Glavosek | Blue Vault

Businessman touching financial dashboard with key performance in

If you spend any time around commercial real estate professionals, chances are good that you’ll hear the term ‘cap rate.’ Short for capitalization rate, the term offers a metric for a real estate asset’s performance. Cap rates’ ups and downs are a frequent topic of discussion in real estate forums.

But what should investors and advisors understand about them?

Why they are important

A cap rate is a reflection of the expected returns that real estate properties can produce. Investors and advisors can look at them as just one way of gauging expectations for how the investment might perform.

Cap rates are taken into account when properties are acquired and when they undergo valuations. For example, if a real estate company is considering acquiring a property from another owner, it will want to know what the cap rate is because it’s reflective of the amount of income the building is generating.

The value of a property at acquisition is sometimes described in terms of its cap rate to provide a reference or relative value to other similar transactions occurring in a similar timeframe.

How they are calculated

Real estate investments produce income available to investors in the form of Net Operating Income (NOI). This is the revenue a property generates adjusted for normal operating expenses. One method of estimating the market value of a REIT’s portfolio of properties is to “capitalize” the REIT’s NOI using a cap rate.

The math is simple: Estimated Property Value = NOI/Cap Rate

As with stock or bond investments, this equation relates the value of the investment to the average return it is expected to produce. It is an inverse relationship. The lower the cap rate for a given level of NOI, the more valuable the property.

Other points

A common misconception is that cap rates somehow equate to distribution yields. This is not the case. Just as Earnings/Price (E/P) ratios are not the same as dividend yields for common stocks, cap rates are not the same as distribution yields for REIT shares. Neither metric captures the rate of return to be expected or realized at the end of the investment holding period, because both are based upon current conditions and current valuations only, rather than long-term changes in cash distributions and share values. Remember that cap rates relate current levels of NOI to current valuations while NOI can be expected to grow over time. Other things equal, the higher the expected rate of growth in NOI, the lower the cap rate for a given property or portfolio.

Blue Vault has more in-depth articles about cap rates available to subscribers only. If you’re not a subscriber, become one today!

Advisors’ Perspectives: What are the Cons to Alternatives?


Advisors’ Perspectives: What are the Cons to Alternatives?

June 16, 2017 | by Beth Glavosek | Blue Vault

equity investment

We’ve been looking at the pros and cons of nontraded REITs and other alternative investments from advisors’ viewpoints.

We heard from several independent Broker Dealer (IBD) sales and marketing executives that alternative investments are showing a lot of promise right now because of their ability to provide income-seekers with potentially higher yields, diversification that’s noncorrelated to the stock market, and an institutional style of investing.

However, we also heard from some IBD representatives about a few of the potential drawbacks to alternative investments.

Disclosure of inherent risks

As with any investment sector – whether it’s stocks, bonds, or others – there are risks to be weighed. Advisors should explain the risks of alternative investments as carefully as they would for anything else. One IBD representative says that this requires due diligence on the part of the advisors, many of whom are pressed for time and may not have a complete understanding of the products themselves. “Alternatives are not as mainstream as they could or should be, so education is critical. Care should especially be taken when it comes to working with elderly clients,” he says. “They need to understand what they’re buying.”

“Fatigue” around illiquidity

Both advisors and investors alike may become impatient when waiting for an investment program to complete its life cycle and either list, liquidate, or sell assets to another buyer. This process could take seven years or more. One IBD representative noted that there could even be disappointment in performance at the conclusion of the programs. Even though a ‘capital pop’ of appreciation is hoped for, it may not happen. “The ‘illiquidity premium’ seems to be missing from the returns realized in some of these products,” he notes.

Regulations and tightening concentration limits

Regulatory scrutiny and uncertainty have made some advisors reluctant to offer the products in their current forms. It still feels risky or unknown. Others are hampered by limits to the amounts that their clients can place into alternative investments. “Investors want to own more shares, but state imposed limitations prevent them from doing so,” says one spokesperson.

If you’re an advisor, what is your opinion? Are you bullish on alternative investments, or do you remain skeptical? We’d love to hear from you and feature your opinions, experiences, and success stories in future blog posts.

Please Note: Responses and/or opinions are confidential and will NOT be published without prior consent.

Advisor’s Perspectives: What are the Pros to Alternatives?


Advisor’s Perspectives: What are the Pros to Alternatives?

June 9, 2017 | by Beth Glavosek | Blue Vault

Stock market graphs monitoring

We’ve been looking at the pros and cons of nontraded REITs and other alternative investments from an investor’s standpoint. But, how are advisors and Broker Dealers feeling about them these days?

We spoke with independent Broker Dealer (IBD) sales and marketing executives to get their perspectives on why there may be a renewed interest in alternatives right now.

Yield appeal

“With interest rates remaining very low, investors seeking yield are asking their advisors where they can find sources of higher income,” says one IBD executive. “Advisors are looking at alternative investments to meet the challenge of finding this income. I see this demand as only increasing as more and more people retire each day.” With their relatively higher distribution yields, these investments can be a good source of generally reliable income.

“When you have some interval funds delivering a yield of 7%, they’re so much more attractive to investors than what they might earn from a CD or bond,” he says.


It has become common practice among IBDs to allow a certain percentage of an investor’s portfolio to be allocated to alternative investments. In many cases, the maximum is 10% of a portfolio’s assets. Whatever the allocation, there’s an opportunity to invest in assets that aren’t correlated to the stock market, that fit a conservative profile (depending upon their investment objectives), and that can provide diversification into actual real estate assets, not just real estate securities.

Institutional quality

“Banks, hedge funds, pension plans, and insurance companies have invested in alternatives for years,” one IBD executive notes. “They’ve always known the value of including them in a diversified portfolio. However, we’re just now starting to see an emerging culture of clients who want the same thing. If the industry can come up with a clear and cohesive system of offering alternative investments to the public, it will be very beneficial for individual investors, and I think we’ll see a lot of growth in this area.”

Because of these supporting factors – demand driven by retirees, a desire for noncorrelated diversification, and an appetite for institutional investing styles – many in the IBD channel expect alternative investments to take off in popularity.

Next week, however, we’ll look at some of the potential ongoing cons to these kinds of investments in order to provide a balanced perspective to advisors and investors alike.

If you’re an advisor, what is your opinion? Are you bullish on alternative investments, or do you remain skeptical? We’d love to hear from you and feature your opinions, experiences, and success stories in future blog posts.

Please Note: Responses and/or opinions are confidential and will NOT be published without prior consent.

Nontraded REIT Pros and Cons – Putting it All Together


Nontraded REIT Pros and Cons – Putting it All Together

May 26, 2017 | by Beth Glavosek | Blue Vault

We’ve been looking at the pros and cons of nontraded REITs for individual investors. To sum things up, nontraded REITs may be appropriate for investors who can set aside a portion of their investment holdings (usually no more than 10%) for a period of up to seven years or so, are comfortable with illiquidity, and can tolerate the ups and downs of the real estate market.

The following is a simple overview of the pros and cons an investor might consider when deciding if a nontraded REIT investment is right for his or her portfolio.

20170526_Pros and Cons table


The $19.5 Billion Dollar Industry No One Was Paying Attention To:


The $19.5 Billion Dollar Industry No One Was Paying Attention To:

Interval and Closed-End Funds

May 16, 2017 | by Jared Schneider | Blue Vault

Full-length confident person in formal suit. A sketch of New York city and forex chart on the background. A concept of the asset management.

Recent headlines have continued to talk about the decline in sales of some alternative investment types, but what is not discussed is the growth in other alternative investments. For example, the combination of interval funds and nontraded closed-end funds (“nontraded CEFs”) amounts to approximately $19.5 billion in assets under management as of December 31, 2016.

While many in the alternative investment industry have been focused on other investments, these nontraded CEFs and interval funds have been quietly growing, with big asset manager names like PIMCO, Blackstone, BlackRock, Apollo, Invesco, FS Investments and Griffin Capital. In 2016 alone, net capital inflows were well over $3 billion. There are a few reasons why these investments have been picking up steam as of late.


One reason is that the structure allows for regular liquidity provisions through a tender offer or repurchase program, although still a relatively illiquid investment. Liquidity typically comes as a via a quarterly liquidity program versus daily as in a mutual fund structure.

Another reason is that the valuation policies allow the investments to sit in an RIA (registered investment adviser), hybrid, or self-directed brokerage account more easily.

Additionally, multiple share classes can accommodate different classes of investors and types of brokerage accounts.

There are drawbacks, of course, and Blue Vault will cover these topics in future articles. We will also delve into the types of assets in which these broad-reaching funds invest. For more information on Interval Funds and Nontraded CEFs, see our Interval Fund and Nontraded CEF Review.