Traditional vs. Daily NAV REITs

March 30, 2017 | by Beth Glavosek | Blue Vault

Traditionally, nontraded REITs have been designed to follow a predictable life cycle. These investments move through distinct developmental stages over time as they grow from inception to maturity.

The nontraded REIT’s ultimate goal is to create a liquidity event for investors to return their capital and, ideally, some appreciation. They also seek to deliver regular income via distributions. These REITs lock in investors’ money in order to develop their portfolios and ultimately deliver a “capital pop” in a best-case scenario. In other words, investors will have enjoyed regular income distributions along the way and then experience capital appreciation on assets when the REIT either goes public, liquidates, or sells its portfolios to another REIT.

Daily NAV REITs Shake Things Up

Historically, nontraded REITs have relied on capital raising through investors who have dedicated an illiquid portion of their investable assets for hard assets that are earning income. However, with the demand for greater liquidity and transparency, product sponsors have introduced Daily NAV REITs. These REITs offer share classes that allow investors to have improved liquidity and more frequent pricing, combining the distribution yields of nontraded REITs with the transparency in pricing and greater liquidity of traded REITs. The daily NAVs are also much less volatile than the traded REIT market, tracking more closely with the underlying real estate portfolio values.

This option can be beneficial for those who want the benefits of holding high-quality real estate, but who aren’t necessarily committed to the life cycle imposed by the traditional nontraded REIT. Investors have the option to redeem some or all of their shares at their NAV values and will not have to wait for a life-changing event (i.e. death, disability, hardship, etc.) to access their invested money.

For more information

Blue Vault published its first-ever Nontraded REIT NAV Study on March 10, 2017. It’s available exclusively to Blue Vault subscribers. To view the report, become a subscriber today!