CHARLOTTESVILLE, MD-For the most part, nontraded REITs have flown under investors', indeed the industry’s, radar. That changed last year when they, along with the their publicly-traded counterparts, began raising record levels of capital. Most observers had a pretty good idea of what the publicly traded REITs would do with the funds that they raised, says Chris Henderson, analyst at SNL Real Estate. "But it was an open question what type of investments the nontraded REITs would make," he tells GlobeSt.com.
For instance, one question, still unanswered, is how much, if any, nontraded REITs would invest in distress, he says. "We still don’t have a good handle on that, but that is something we will be able to answer in time."
Meanwhile, as these companies begin making acquisitions, SNL is getting a preliminary sense of where their investment tastes lie, at least for this particular market cycle: Retail has been the most commonly purchased property type this year, with 89 acquisitions in the sector, SNL reports. By contrast, the majority of publicly traded REIT acquisitions have involved health care and office properties, with 33 and 29 purchases, respectively.
"The interesting thing about nontraded REITs is that they have gravitated toward steady, cash-flowing asset classes like single-tenant retail," Henderson says. SNL also found that while nontraded trusts have purchased more properties than their publicly traded counterparts so far in 2010, publicly traded REITs have spent approximately 35% more on acquisitions than the nontraded variety.
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