Non-traded REITs are private portfolios of real estate that allow investors to share interests in a portfolio of property, without trading shares on a public stock exchange. They offer stable dividend yields and protection against stock market volatility, but investors commit their money for a specified period of time. Both non-traded and publicly traded REITs must register with the SEC and pay 90% of income as dividends. Non-traded REITs have expanded into specialty goods, such as self-storage facilities, healthcare buildings, and entertainment venues.
Non-traded real estate investment trusts (non-traded REITs) are portfolios of private property. A REIT is a type of corporation that allows multiple investors to share interests in a portfolio of real estate, in the same way that investors share the earnings of a portfolio of stocks through a mutual fund. A REIT can be publicly listed on a stock exchange or private. Unlike RIETs, non-traded REITs do not trade shares in the REIT on a public stock exchange.
The REIT concept originated in the US in 1960, but has since spread to many countries around the world. Since many countries do not allow foreign citizens to own property, the REIT has become a legitimate way for foreign investors to reap the benefit of partial ownership of foreign real estate. The traditional REIT is publicly traded, which allows for the free transfer of shares by the investor at any time through a stock exchange. During downturns in global financial markets, the ability of investors to dump their shares in a publicly traded REIT begins to affect the value of the publicly traded REIT and the returns it could offer investors.
The popularity of the non-traded REIT is the result of a poor economic climate as a vehicle that could force investors to ride out economic vagaries. Investors in a non-traded REIT commit their money for a specified period of time, typically seven to 10 years, and cannot easily withdraw or trade that interest until the investment term has expired. During that time period, the investor earns dividends on their investment until the investment term ends and the non-traded REIT is liquidated or an initial public offering is arranged. The investor in this type of private REIT trades liquidity for stable dividend yields, protecting themselves against stock market volatility. Publicly traded REITs are vulnerable to volatile markets.
In many other respects, non-traded REITs are like publicly traded REITs. In the US, both must register with the Securities and Exchange Commission and must pay 90% of income as dividends. Both types of REITs enjoy the same tax benefits as a transfer tax corporation that can avoid double taxation. Non-traded REITs have even expanded into the realm of specialty goods that had been the purview of publicly traded REITs. In addition to the four standard types of real estate—office, retail, apartment, and industrial—non-traded REITs are now investing in self-storage facilities, healthcare buildings, entertainment venues, forests, and other non-traditional property types.
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