Further on the Returns to Non-Traded REITs

Abstract

In this article, we expand our prior research on 89 non-traded REITs with 51 nontraded REITs that first updated their NAVs after May 1, 2015 or came into existence after May 1, 2015, and had either had a liquidity event or updated their NAVs by December 31, 2019.

We document significantly lower returns earned by investors in 140 non-traded REITs compared to the returns they would have earned in a portfolio of traded REITs. Non-traded REITs as a group underperform traded REITs by approximately 8% annually. The dollar losses from investing in non-traded REITs instead of traded REITs exceed $75 billion as of December 31, 2019. The underperformance has not decreased over time; non-traded REITs that broke escrow in 2015-2019 underperform traded REITs to the same degree as earlier non-traded REITs. We show that non-traded REITs’ aggregate underperformance is observed for capital raised in every calendar quarter.

TOPICS: Exchange-traded funds and applications, real estate, risk management, performance measurement

Key Findings

• ▪ Non-traded REITs continue to significantly underperform traded REITs.

• ▪ This aggregate underperformance was $75 billion as of December 31, 2019 and is observed for capital raised in every calendar quarter.

• ▪ Despite real estate risk and illiquidity, aggregate non-traded REITs returns approximately equal returns to short term Treasury securities.