Further on the Returns to Non-Traded REITs

Abstract

In this article, the authors expand their prior research on 89 non-traded REITs with 51 non-traded 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. They 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 underperformed traded REITs by approximately 8% annually. The dollar losses from investing in non-traded REITs instead of traded REITs exceeded $75 billion as of December 31, 2019. The underperformance did not decrease over time; non-traded REITs that broke escrow in 2015–2019 underperformed traded REITs to the same degree as earlier non-traded REITs. They show that non-traded REITs’ aggregate underperformance is observed for capital raised in every calendar quarter. 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.