In an InvestmentNews.com article, Dan Jamieson writes that Green Street Advisors Inc., says to forget the new breed of nontraded REITs. Investors are far more likely to be better off with publicly traded REITs, the research firm said in a report released Wednesday.
The current regulatory scrutiny has forced sponsors of nontraded REITs to address issues surrounding valuations, illiquidity, high fees, dividend payouts and conflicts, the report said. One crucial change: the introduction of daily net-asset-value estimates by several sponsors, as better pricing transparency might end the illusion of share-price stability, Green Street said.
“Since the shares don’t trade, the share price investors see on their statements every quarter doesn’t fluctuate,” the company said. That stability has been “one of most bizarre ‘advantages’ touted by nontraded-REIT sponsors.”
Jamieson writes that questionable dividend yields of 5% to 10% are likely to fall closer to the 3.3% yield for publicly traded REITs. Green Street said nontraded REITs have gotten something right, however: low leverage. In addition, “egregious” upfront costs of 7% to 10% on nontraded REITs should come down to 1% to 3%, the report said, and management fees of around 1% will drop, as well.
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