Investments In Nontraded REITs Up 39%, But Still Far Outpaced By Withdrawals

Fundraising shot back up in June for nontraded REITs after a moribund start to 2023, but the money raised was still far less than investors pulled out of the alternative investment vehicles, according to a new report.

Nontraded REITs raised $597M in June this year, up 39% from a low point of $428M in May, according to Robert A. Stanger & Co.

June’s figures bring year-to-date fundraising for nontraded REITs to $7.8B, placing the industry a long way from the $33B it raised during 2022. Redemption requests continue to follow the sector’s fundraising efforts, as investors seek opportunities to draw on returns and exit funds.

Between April and June, investors redeemed nearly $4.5B in funds from nontraded REITs, or 291% of what was raised.

Nontraded REITs, which own real estate and allow limited liquidity withdrawals, have faced challenges over the last year. Investors have sought to withdraw funds in volumes that caused companies to cap redemptions, later resulting in a Securities and Exchange Commission investigation into redemption freezes at the two largest nontraded REITs owned by Blackstone Group and Starwood Group, respectively.

Blackstone is also leading this year’s fundraising charge so far among nontraded REITs, raising $5.6B. But requests for redemptions for Blackstone Real Estate Income Trust, or BREIT, reached $3.8B in June.

While the fund’s leadership said that this was 29% lower than January’s volume, requests have remained in the billions of dollars throughout this year: $3.9B in February, $4.5B in both March and April, and $4.4B in May.

But BREIT, which has a $68B net asset value, has been slowly recovering after selling assets and reported a 0.96% return on investments in June, The Real Deal reported. 

The second highest amount raised so far this year came from FS Investments, at $467.6M, according to Stanger, followed by $312.3M for LaSalle Investment Management, $291.9M for Ares Management's fund and $229.3M for Apollo Global Management's Apollo Realty Income Solutions.

Investment in nontraded REITs peaked in 2021 as investors sought alternatives from a red-hot stock market.

Nontraded REITs sit within the world of alternative investing options, with the sector overall raising $30.4B during the first half of this year, per Stanger’s analysis. Other investment vehicles in the sector, like nontraded business development companies, showed promise, Stanger & Co. Chairman Kevin Gannon said in a statement.

BDCs, which invest in credit, raised $1.3B in June, with Blackstone’s BCRED accounting for the lion’s share of new funds raised at $789M.

“Non-Traded BDCs have exceeded $1 billion in fundraising for the fourth month in row,” Gannon said. “Angelo Gordon, Bain, Fidelity, and Golub are yet to report escrow breaks while several newcomers such as Kennedy Lewis and T. Rowe Price have both joined the pre-effective BDC pipeline.”