Schorsch: Non-Traded REITs 'Should Be $350B'

NEW YORK CITY-“The future is NOW for the non-listed REIT industry,” according to a PowerPoint slide projected during opening remarks at Thursday's New York Non-Traded REIT Industry Symposium here. Another slide pegged the sector's future to its success in chameleon-like adaptation.

It's a future that wouldn't have been foreseen in 2003, when Information Management Network sponsored its first such symposium on what was then an off-the-radar vehicle. Yet today, the non-traded sector accounts for $84 billion of assets, said Nicholas Schorsch, chairman and CEO of American Realty Capital, which sponsors five such offerings.

Sizable though that number may be, Schorsch said, “This industry should be $350 billion,” based on a 5% share of the $7 trillion in assets held by the mass affluent market. “We will become bigger if we do our job right.”

Doing that job properly has become more challenging in many ways, and is likely to become harder still when “regulatory overlays” are factored in, said Dan Gilbert, CIO and COO for Northstar Realty Finance Corp. and CEO of Northstar Realty Asset Management. In general, it's not easy sledding for startup companies, Gilbert said, noting that if Northstar didn't have a successful organization in place before entering the non-traded REIT arena, it's possible the company wouldn't have gone into the space to begin with. His company sponsors two non-traded vehicles: Northstar Real Estate Income Trust and Northstar Healthcare Income.

In fact, four of the five CEOs discussing the future of the non-traded sector at the IMN symposium Thursday morning came from publicly traded entities—a figure that would have been zero in '03. As of Thursday, that publicly traded number included Cole Real Estate Investments, whose CEO, Marc Nemer, said the non-listed sector was “ripe for significant growth.”

Yet that growth, as well as the sector's credibility, will accelerate when non-traded REITs demonstrate “institutional investment acumen,” Gilbert said. Broker-dealers are increasing their focus on risk management, Nemer and Gilbert said, with Gilbert asking rhetorically why a broker-dealer would “put a non-traded sponsor in there when they could get Blackstone or BlackRock?”