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Non-traded REITs Fall Hard

Earlier this month, CNL Lifestyle Properties reported a sharp decline in share value, from $10 to $7.31.  And last month Dividend Capital Total Realty Trust revised its share price from $10 down to $6.69.

Both investments are non-publicly traded Real Estate Investment Trusts (REITs).  Both losses are substantial.  And both are just the latest bad news for non-traded REIT investors.

Non-traded REITs are exactly what they sound like: real estate investment trusts that are not traded publicly…meaning they are an illiquid investment.  Once an investor buys in, they may not be able to redeem their shares when they want to.

According to a study by MTS Research Advisors, eight of the largest non-publicly traded REITs have lost 37% of their value over the past seven years.  That equals an $11.3 billion hit for investors (Investment News).

And it seems that the bigger they are, the harder they fall.  The eight REITs studied all raised over $1 billion from investors, and they all had declines of more than 20% in value.

The concern is that the non-traded REIT (and the ‘direct participation’ investment) industry will draw in something like $9 to $10 billion from investors this year.  That means some investors could have a lot to lose.


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