Blue Vault Partners Releases Results from Third Annual Nontraded REIT Full-Cycle Performance Study

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Blue Vault Partners, the first independent research firm to offer peer analysis and quarterly performance reporting of nontraded REITs, releases study showing full-cycle performance results for 35 individual nontraded REITs and highlights the industry’s outperformance of traditional stock and bond indexes.

Blue Vault Partners, in collaboration with the Real Estate Finance and Investment Center at The University of Texas at Austin’s McCombs School of Business, has completed its third annual research study analyzing the performance of 35 nontraded REITs that completed a full-cycle event between 1990 and July 1, 2014. This is the third year in a row that the two groups have worked together to compare individual nontraded REIT returns to their respective customized benchmarks based on institutional and public commercial real estate returns adjusted for leverage, property type and geographic location.

This year’s study includes data for eight additional nontraded REITs. Similar to the 2013 study, results from the 2014 study show that in general, those nontraded REITs with shorter time periods from inception to a full cycle event performed better than those with longer holding periods. Additionally, the shortest time between being declared effective by the SEC and completing a full-cycle liquidity event declined from 3.75 years in the 2012 study down to 1.9 years in the 2014 study.

Given that nontraded REITs are often marketed to retail investors who are looking to invest in institutional quality real estate, receive above-average distribution yields and lower the volatility of their investment portfolio, the study was designed to update results from the 2013 study in addition to answering new questions regarding the returns experienced by common shareholders who tendered their shares in third-party tender offers or who redeemed shares via the REITs’ share redemption programs prior to the full-cycle events. Key findings from the 2014 study show that:

  • The average annual distribution yield for the 35 REITs analyzed in the study was 7.05%, which is slightly lower than the average of 7.26% in the 2013 study.
  • Assuming an investment during the early stage of an offering and the reinvestment of distributions, average annual rates of return for the 35 full-cycle nontraded REITs ranged from -4.13% to 20.52%. The average return for the latest eight full-cycle REITs of 9.02% far exceeded the average return for the ten REITs added to the study sample in 2013.
  • Consistent with the 2013 study, higher average rates of return and low cross-sectional correlations between nontraded REITs and the S&P 500 Index and the Intermediate-Term U.S. Treasury Bond Index suggest potential for diversification benefits within a context of well-diversified portfolios.
  • Comparisons of returns for the full-cycle nontraded REITs to the NCREIF and FTSE NAREIT benchmark returns over time show generally higher correlations with the publicly-traded index returns, which is consistent with previous results.
  • As noted in the 2013 report, this latest study also shows that when comparing nontraded REIT full-cycle returns to traditional investment market indices, the average annualized returns for the 35 nontraded REITs in the study was higher than the average return for the S&P 500 Index and the Intermediate-Term Treasury Bond Index when compared over matched holding periods.
  • As it relates to individual performance, 20 of the full-cycle REITs outperformed the S&P 500 Index and 27 of 35 outperformed the Intermediate-Term U.S. Treasury Bond Index.
  • When comparing full-cycle returns for each nontraded REIT in the study to its respective custom benchmark, 17 of 35 of the nontraded REITs analyzed outperformed one or both of their benchmarks.
  • Shareholders who tendered shares in response to third-party tender offers had average rates of return that were negative, underperforming the full-cycle returns of those REITs by over 7%. Shareholders who redeemed shares in the latest quarters prior to the full-cycle events also had approximately 2.4% lower average returns than those who held for the full-cycle.

Founded in 2009, Blue Vault Partners was created for the purpose of providing unbiased research, education and enhanced transparency for the nontraded REIT industry. As part of an ongoing effort to increase the awareness of these investment vehicles, the study was designed to provide a better understanding of the long-term returns, risks and rewards associated with these types of real estate offerings. Full results from this study are reserved for subscribing members. Please contact Blue Vault Partners at 877-256-2304 for more information.

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Vee Kimbrell
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