Investing Fundamentals

How Non-Traded REITs Could Benefit Investors' Overall Portfolios

Can redemption provisions hurt your investment? Our take on Non-Traded REITs and investing during volatile market cycles

by Coral Enriquez

Despite strong real estate fundamentals and recent positive performance, some well-known non-traded REITs (“NTRs”), Blackstone REIT (“BREIT”) and Starwood REIT (“SREIT”) among others, are experiencing increased redemption requests from investors. These redemption requests have been hitting their contracted withdrawal caps of these semi-liquid funds, prompting some NTR managers to limit investor requests for liquidity1

Why does this matter? Too many net redemptions can cause a slew of liquidity problems for NTRs. By managing redemptions, NTR managers can potentially protect their investment portfolios (and thus their investors) as the underlying assets are not easily liquidated in the short term. Doing so would be harmful to value. Indeed, established NTRs like BREIT and SREIT are considered to be a long way from liquidity trouble1. NTRs are long-term investments and redemption limit features are designed to protect against forced selling.

Despite the recent news about redemptions, real estate and non-traded REITs may continue to offer a number of benefits to investors in times of high volatility due to their historically uncorrelated nature relative to the equity markets*2,3,4 and its historical ability to help mitigate the effects of inflation5. During these uncertain times, investors are asking themselves ‘should I invest in real estate?’. Instead, investors should be asking themselves ‘how should I invest in real estate’? 

Many non-traded REITs offer a more conservative income-based strategy by investing in stabilized core and core+ (“core/+”) real estate, income-producing properties. However, investors should note that the core/+ strategy is traditionally less likely to benefit from the upside that growth-oriented properties offer during an opportunistic environment with favorable entry pricing like today6. Investors still looking to benefit from short-term income-based private real estate, while also capitalizing on the potential for long-term growth offered during this investing cycle could benefit from reviewing their allocations to private real estate. Complementing their income-producing properties with more growth-oriented investments is a potential option.

Growth-oriented investments such as CrowdStreet Advisors’ managed offering, the CrowdStreet REIT (“C-REIT”), has many of the benefits of a traditional non-traded REIT and private real estate mentioned above, minus the redemption considerations. In addition, with its nimble and opportunistic investment strategy, the C-REIT is positioned to take advantage of a potential downturn and market dislocation as current price decreases and rising interest rates are expected to lead to more favorable entry points.

1 Wall Street Journal - Blackstone’s BREIT Highlights Looming Dangers of Private Funds, December 12, 2022
2 Investopedia - Protect portfolios using correlation diversification, December 31, 2021
3 Forbes - Protect your portfolio with uncorrelated assets, June 16, 2020
4 CCIM Institute - Non-Traded REITs offer Stability and Portfolio Diversification
5 CrowdStreet Inc - What asset classes may mitigate the effects of inflation? September 14, 2022
6 Green Street - Private Capital Begins Hunting for Bargains, November 29, 2022

*Private real estate is, by nature, generally less volatile than the stock market. This lack of volatility does not necessarily translate to private real estate not fluctuating in or losing value. Further, the value of private real estate investments will fluctuate, and the value of real estate often lags behind general market conditions.

This article was written by an employee of CrowdStreet Advisors, LLC, a registered investment advisor and a subsidiary of CrowdStreet, Inc.

This article has been prepared solely for informational purposes. All information is from sources believed to be reliable. Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. Investing in commercial real estate entails substantive risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate.

CrowdStreet, Inc. (“CrowdStreet”) offers investment opportunities and financial services on its website. Advisory services are offered through CrowdStreet Advisors, LLC (“CrowdStreet Advisors”), a wholly-owned subsidiary of CrowdStreet and a federally registered investment adviser. CrowdStreet Advisors provides investment advisory services exclusively to privately managed accounts and private funds and does not otherwise provide investment advisory services to the CrowdStreet Marketplace or its users. 

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