Non-traded REITs limit withdrawals amid investor rush to retrieve cash

Smaller investors feeling the financial pressures from the pandemic are finding it increasingly difficult to redeem shares

TRD NATIONAL /
Apr.April 15, 2020 09:00 AM
Fund managers for non-traded REITs are limiting withdrawal amounts to maintain some liquidity and avoid having to sell assets at a loss (Credit: iStock)

Fund managers for non-traded REITs are limiting withdrawal amounts to maintain some liquidity and avoid having to sell assets at a loss (Credit: iStock)

Thousands of people who poured billions of dollars into non-traded real estate investment trusts are now discovering that taking money out is a little more complicated.

Many fund managers are limiting how much cash investors can pull from their funds, or are refusing withdrawals altogether, according to the Wall Street Journal.

Non-traded REITs were attractive to small individual investors because many required only a few thousand dollars as a minimum investment, while offering entree into the relatively stable real estate asset class.

Those funds have attracted $70 billion in investments since 2013, according to the Journal. Some of the industry’s biggest entities have built huge non-traded REITs, including Blackstone and Starwood Capital Group; both are are still allowing investors to withdraw from their funds.

Because the REITs aren’t publicly traded, the only way to withdraw money is to redeem shares. As the coronavirus has crippled the economy and led to millions of layoffs, many smaller investors are feeling the financial pressures, and looking for other sources of income.

Fund managers, meanwhile, are trying to maintain some liquidity. Some say they have no way of valuing the assets in the fund portfolios, or the shares of the fund amid pandemic-fueled economic instability.

Commercial REIT InPoint stopped the sale of new shares and stopped dividend payments in late March. CEO Mitchell Sabshon said it wouldn’t be fair to redeem shares that value the REIT’s assets above their actual value, the Journal reported.
Some funds have built-in withdrawal request caps, and the rush to pull out money has triggered them. Alternative asset manager FS Investment limits share redemptions if requests exceed a certain level.

That was “designed to protect all investors by striking a balance between providing liquidity and being forced to sell illiquid assets in a way that would be detrimental to shareholders,” FS Investment’s Matt Malone said told the paper. [WSJ] — Dennis Lynch 


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