Johnathan Rickman | Blue Vault

While quarterly fundraising for the nontraded REIT industry is still far off its 2021 peak, the alts sector reported a second consecutive increase in inflows in the first quarter of 2025¹, adding to a growing body of research portending a potential rebound in the U.S. real estate market.

The nontraded REIT industry raised an estimated $2.08 billion in the first quarter of 2025, up from $1.72 billion in the fourth quarter of 2024 and $1.38 billion in Q3 2024, the latter being one of the sector’s lowest capital raises on record.

The most recent results mark the first time since the second quarter of 2023 that capital raise eclipsed $2.0 billion and follows from the heady days of 2021 when quarterly fundraising reached as high as $12.5 billion.

Blackstone Real Estate Income Trust has dominated the sector since it was introduced in 2016. Blackstone led the sector with $822.8 million in capital raise in the first quarter of 2025 for a 39.6% market share, having raised an estimated total of $81.6 billion since inception. It also leads the sector in total assets, managing $112.9 billion as of March 31, 2025, making up 61.1% of the industry’s total of $184.7 billion.

Other top capital raisers, since inception and as of March 31, 2025, include the sponsors AR Global ($17.9 billion), Inland Real Estate Investment Corp. ($17.5 billion), Starwood Capital Group Holdings ($14.2 billion), and CIM Group ($13.7 billion).

“The recent uptick in nontraded REIT fundraising signals a renewed confidence in the underlying real estate market,” Warren Thomas, Co-Founder and Managing Partner, ExchangeRight, told Blue Vault. “The next chapter of the REIT industry will be defined not by who can raise the most capital, but by who can steward it best. With valuations resetting, disciplined REITs have a historic opportunity to acquire on favorable terms — the key is having the track record and structure to earn investor trust and deploy capital responsibly.”

Distributions

While a reset does appear to be happening, the industry still has more work to do. Lingering high interest rates haven’t been friendly to REITs. The real estate market downturn has had a troubling trickle-down effect on REIT performance, resulting in a dearth of new offerings. In fact, there were no new offerings in 2024 and none in the first quarter of 2025.

Meanwhile, data show that not all REITs are covering their distributions. Over the past two quarters, many have had to draw on other income sources to pay shareholders. When payout ratios for funds from operations (FFO), an accrual measure of profitability, rise above 100%, this typically indicates that REIT income isn’t enough to cover distributions. This is more often the case with open REITS, especially those that have only been fundraising for less than two years, but closed REITS have also struggled in this area:

                    FFO Payout Ratio YTD 2025 (excluding REITs reporting “not meaningful” or “N/A”)

Over the same period, Cohen & Steers Income Opportunities REIT Inc. (effective February 21, 2023) had the strongest FFO payout ratio for open REITs at 64%, while Inland Real Estate Income Trust Inc. (effective October 18, 2012) had the strongest ratio for closed REITs at 41%.

As of March 31, 2025, Cantor Fitzgerald Income Trust Inc. and FS Credit Real Estate Income Trust Inc. had the highest average distribution yields for open REITs at 6.81% and 6.35%, respectively.

The Bigger Picture

A REIT is a trust company that raises equity through an initial public offering, which is then used to buy, develop, manage and sell assets in real estate, which can include everything from shopping malls to self-storage facilities and warehouses.

Property acquisitions by active REITs rose in the first quarter of 2025, rising to 26 from 19 during Q4 2024. All nontraded REITs had $4.35 billion in cash on their balance sheets as of March 31, 2025, to help fund future acquisitions and redemptions — up from $3.85 billion as of December 31, 2024.

Clearly, REITs continue to buy and sell assets despite ongoing market challenges, providing opportunities for investors willing to play the long game. As public and private real estate valuations become more aligned, and the market regains its footing, REITs will be in a better position than many of their commercial real estate competitors to pursue potential acquisitions and accretive growth opportunities. That’s according to a recent report² by Nareit, the U.S.-based trade group for REITs and publicly traded real estate companies.

Data from Nareit’s REIT Industry Tracker shows recent net acquisition on a steady incline.

CBRE, the commercial real estate services and investment giant, said in a recent study³ of its own that it expects the U.S. office supply to rebound amid accelerating demolition and conversion activity.

“Among the 58 markets tracked by CBRE Research, 23.3 million sq. ft. of office space is on track for conversion to other uses (12.8 million) or demolition (10.5 million) this year, far outpacing the 12.7 million sq. ft. of expected new office supply,” the group said.

Highlighting the multifamily housing sector’s strong fundamentals, CBRE noted that more than 70% of planned and active office conversion projects are expected to deliver some 43,500 housing units if planned projects proceed. “This year, approximately 68 conversions totaling 12.8 million sq. ft. are expected,” the group said.

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References                                                                                

¹ Blue Vault Nontraded REIT Industry Review: First Quarter 2025

² Nareit, “REITs Better Positioned to Pursue Acquisitions and Growth”. June 16, 2025.

³ CBRE, “Conversions & Demolitions Reducing U.S. Office Supply”. June 3, 2025.