REIT Liquidity Caveats

The recent spate of real estate investment trusts suspending withdrawal privileges caught many investors by surprise. When investors participate in a private placement they are looking for better performance in return for locking money up. But when most invest in REITS they expect easier access to their money.  That isn’t always the case.

Recently major REITS from Blackrock, KKR, KBS and Starwood have placed limits on withdrawals. In other words, investors are no longer able to get their money out. So, it’s important to understand what you are buying and the terms. These are nontraded REITS. And different from publicly traded REITS.

Last year the publicly traded iShares U.S. real estate ETF declined by more than a quarter its value. So, the price here for easy access to funds was a lot of downside volatility as the publicly traded share price fell more than price declines in the underlying properties based on actual real estate transactions.

In publicly traded REITS shares fell largely over recession and interest rate fears. In economic terms investors are learning there are no free lunches. Major nontraded REITS have suspended redemption privileges. Publicly traded REITS saw share prices plummet last year.

Of course private placement real estate investments of the sort we offer lock money up in return for what is called the illiquidity premium. The upsides with private placements using committed capital is we don’t have to worry about being forced to sell into a tough market to cover redemption requests or have our share value determined by investor worries more than current market prices. We can wait until we judge market conditions supportive of an exit for investors.