A Non-Traded REIT is a real estate investment trust that is not listed on public stock exchanges, offering real estate exposure with limited liquidity.
Non-Traded REITs (Real Estate Investment Trusts) are companies that own, operate, or finance income-producing real estate but are not publicly traded on stock exchanges. Unlike publicly traded REITs, non-traded REITs offer shares through private placements or broker-dealers, making them less liquid and not subject to daily market pricing. They pool capital from investors to invest in real estate assets such as commercial properties, residential apartments, or specialized real estate sectors.
Locking capital into a non-traded REIT can diversify a family office’s portfolio by adding real estate exposure with potentially lower volatility compared to publicly traded REITs. The stable income distribution from rental revenues supports income strategies within a wealth management plan. However, the illiquidity and complex fee structures require careful consideration in investment strategy and governance to ensure alignment with liquidity needs and risk tolerance.
Suppose a family office invests $500,000 in a non-traded REIT focusing on commercial real estate. The REIT aims to provide a 7% annual dividend yield funded from rental income. Over five years, the family office receives approximately $35,000 per year in dividends. However, because the REIT is non-traded, the family office cannot quickly sell its shares on the open market and usually must wait until the REIT initiates liquidity events, which might occur after 7 to 10 years.
Real Estate Investment Trust (REIT)
A Real Estate Investment Trust (REIT) is a company that owns or finances income-producing real estate and is typically traded on public stock exchanges, offering liquidity and market pricing unlike non-traded REITs.
What distinguishes a non-traded REIT from a publicly traded REIT?
Non-traded REITs are not listed on public exchanges, resulting in limited liquidity and less frequent valuation updates, while publicly traded REITs are easily bought and sold on stock exchanges with transparent market pricing.
Are non-traded REIT investments suitable for all investors?
Due to their illiquidity, higher fees, and longer holding periods, non-traded REITs are typically suited for investors with long-term horizons and higher risk tolerance, such as family offices or institutional investors.
How are dividends from non-traded REITs typically taxed?
Dividends from non-traded REITs may be taxed as ordinary income or capital gain depending on the REIT’s earnings composition; investors should consult tax advisors to understand the specific tax implications.
