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Insights

Insights are available to Blue Vault Subscribers only. If you are not currently a subscriber, and would like to know more, contact Dawn McDaniel toll free at 877-256-2304, extension 2.

Timing and Selection in the Performance of Full-Cycle Nontraded REITs

In the recent study prepared in collaboration with The University of Texas called, “Nontraded REIT Industry Full-Cycle Performance Study” in addition to analyzing the total returns of the 17 nontraded REITs that went full-cycle between 1990 and March 2012, the findings also provided insights into what we might call “Timing versus Selection.”

Secondary Markets

Shareholders in nontraded REITs have limited options when attempting to liquidate some or all of their common stock holdings. While most nontraded REITs have share redemption programs, these programs may have been suspended due to liquidity issues or restricted to redemption requests filed due to death, disability or other hardships. Blue Vault reports on the redemptions of nontraded REIT shares by each REIT on a quarterly basis, but a more complete picture of the redemptions issue would require a comparison of redemptions request to redemptions granted. For example, CNL Lifestyle REIT redeemed 319,000 shares of the 9,726,000 pending redemption requests in 3Q 2012. Behringer Harvard REIT I redeemed 880,000 shares (0.3%) of the 299 million shares outstanding in 2012. KBS REIT I imposed a $10 million limit on redemptions for all of 2012 and redeemed 1.38 million shares (0.7%) of the 191.1 million shares outstanding at an average price of $5.58 per share.

Crowdfunding in the Real Estate Arena

The Jumpstart Our Business Startups (JOBS) Act was intended to facilitate funding of small businesses by easing regulations. It was passed and signed into law on April 5, 2012. Title II of the JOBS Act went into effect on September 23, 2013, lifting a decades-old ban on the mass marketing of securities offerings. Title III will allow anyone, regardless of whether or not they are accredited investors, to participate in equity crowdfunding.

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I have been in the financial services industry for 20 years and our firm provides an education platform that gets clients to “think differently” about their financial picture.  For many years we have communicated to clients the need to diversify their portfolios using alternative asset classes and more specifically, private non-traded investments.  Due diligence on these types of financial vehicles is essential and when I learned about Blue Vault in 2010, our firm immediately began using their material as a tool to build confidence in the minds of our advisors on which alternatives to recommend to clients.  I am impressed with the way Blue Vault continues to add value to their subscribers and I view their publication as a tremendous resource in today’s complex world.

John E. Moriarty, ChFC Founder & President, e3 ConsultantsGROUP December 2015 February 3, 2016