Blue Vault Partners: “Record Year” for Nontraded REITs in 2010

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In a special report, Blue Vault Partners, the only firm reporting on quarterly performance of nontraded REITs, finds 2010 was a record year for the industry with 15 new funds bringing the total to 61. BVP projects more than $8 billion invested in 2010 -- a “real comeback” from 2009.

Nontraded REITs mounted a real comback last year ... the pool has gotten somewhat crowded.

Nontraded REITs -- a unique niche in real estate investing -- logged a record year in 2010, adding 15 new funds and reaching an estimated $71 billion in assets, according to new research from analysts Blue Vault Partners.

Blue Vault Partners is the only independent research firm reporting on the quarterly performance of nontraded REITs -- real estate investment trusts whose shares are issued directly, not via the stock market. In a special annual edition for subscribers, BVP points to a healthy rebound in the sometimes controversial sector.

“Nontraded REITs mounted a real comeback last year, after being battered by the financial crisis,” said BVP managing partner Stacy Chitty. “In a sense, we’re seeing everybody back in the pool -- to the point where the pool has gotten somewhat crowded, with 61 different REITs.”

Blue Vault Partners projects the nontraded REIT industry pulled in a total of $8.1 billion in new capital from investors in 2010, up 25 percent from 2009 levels. “We’re estimating the industry could hit $10 billion in 2011,” added managing partner Vee Kimbrell. “That’s based on current trends, as well as three or more REITs going ‘full cycle’ -- returning capital to investors, who may recycle those dollars back into the industry.”

BVP estimates that Cole Credit Property Trust III was the top-ranking nontraded REIT in 2010 investment sales, followed by Apple REIT Nine and KBS Real Estate Investment Trust II. Despite the plethora of choices for investors, the top 10 nontraded REITs raised 83 percent of all investment dollars in the sector.

And while the industry set a record for new entrants -- in fact, new nontraded REITs exceeded the number of publicly traded REIT IPOs -- many of the newcomers didn’t fare comparatively well in their first year. The 15 nontraded REITs launched in 2010 raised just $51 million in capital. Back in 2009, 12 new funds raised $86 million.

Nontraded REITs occupy a distinct niche among real estate investment trusts. Investors purchase shares directly from the sponsors. Nontraded REITs also are known for paying dividend income over a long investment horizon -- typically seven to 10 years -- and may have limited liquidity and significant fees.

Distribution yields among nontraded REITs varied widely in 2010, from 1 percent to 8 percent. The average yield paid in the fourth quarter was 6.5 percent, compared to an average of 4.2 percent for publicly traded REITs.

About Blue Vault Partners

Atlanta-based Blue Vault Partners LLC offers quarterly nontraded REIT reports and annual research subscriptions for financial advisors, broker/dealers, REIT sponsors and others serving the industry. For more information about Blue Vault Partners’ research and reporting services, visit http://www.bluevaultpartners.com.

EDITORS NOTE: Blue Vault managing partners Stacy Chitty and Vee Kimbrell are available for interviews, comment and background on the nontraded REIT industry.

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Robert Byrd
Robert Byrd Communications
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