NEW YORK CITY—A year ago, United Realty Trust Inc.'s Jacob Frydman went on record with the SEC in support of a regulatory change by the Financial Industry Regulatory Authority that would force greater transparency in reporting by non-traded REITs such as his. “We view this proposal not only as a way to provide investors and investment advisors with greater visibility into the actual costs associated with their investment, but also as a way to compare and contrast differing sponsors based on their performance and the investment strategies they are pursuing,” Frydman, URTI's chairman and CEO, wrote last March.

Specifically, FINRA Rule 2014-006 will require non-traded REITs to report per share NAVs that are calculated on a periodic basis using a methodology that conforms to standard industry practice. Last month, URTI published its initial NAV of $12.51 per share, an increase of 19.7% over the initial $10.45 offering price for its shares.

“We're very proud to have increased our NAV” since the initial offering, Frydman tells GlobeSt.com. The company, which follows a dual strategy of investing either in opportunistic assets or cash-flowing, stabilized properties, takes even greater pride in being ahead of the regulatory curve on repricing that NAV: it voluntarily went into the initial offering two years ago with a valuation policy consistent with 14-006.

Initial offering periods on non-traded REITs normally run for three years and may be extended up to three more. During the IOP, the per-share price usually remains the same. One criticism leveled against this method is that it does not take distributions or fees into account. Additionally, Frydman says, the value of the REIT's assets may ebb and flow over time, but this hasn't been reflected in the pricing.

That will change when 14-006 takes effect, and nontraded REITs may employ one of two methods for providing an estimated net value: net investment, which shows the actual amount available for investment, or independent valuation, conducted by or with the assistance of a third-party valuation expert. URTI opted for independent appraisal of individual properties in its portfolio, conducted by appraisal firm KTR Real Estate Advisors, also based in New York City.

When 14-006 does become the law of the land for non-traded REITs as well as direct-participation programs, Frydman believes the impact on the market will be “almost immediate.” For some of his competitors, the rule change may provoke bouts of nervousness, since thanks to the greater transparency investors will be able to see more clearly whether they're playing a winning or losing hand. Conversely, he says, it will also favor those REITs that can stand up to the scrutiny.