The Huge Difference Between Traded and Non-Traded REITS

By Rick Kahler via

In February 2016, I published an article that was not kind to non-traded or private real estate investment trusts (REITS). Unlike the traded variety that can be sold immediately on a public exchange, non-traded REITS have no public market if you want to liquidate the shares, making them much more illiquid. I contended that even though non-traded REITS had some theoretical benefits, the high fees and commissions, illiquidity, lack of transparency, and lack of a track record associated with them negate any advantage. My longstanding recommendation has been to stay with traded public REITS for your portfolio.

That article was picked up by Barron’s, where it was read by Tom Lonergan of JLL Income Property Trust. He agreed with me that most non-traded REITS did have all the negatives I listed, but pointed out that others did not. While I was skeptical, I decided to investigate further.

My investigation over the past year did turn up a handful of non-traded REITS that don’t pay a commission, have reasonable fees, have limited liquidity, offer transparency, and do have an existing portfolio of properties that offers an easily discernable track record. This article is my acknowledgement that not all non-traded REITS are equal.

First, why should you even care if real estate is in your portfolio? The biggest reason is that it’s the third largest asset class, behind bonds and stocks. Of all that real estate, about 7% is owned by public REITS. The remaining 93% is owned by publicly traded corporations, private partnerships and REITS, and individuals.

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