Non-Traded REIT Valuations Under Scrutiny

A recent article in The Wall Street Journal highlighted an apparent divergence in returns among publicly-traded and non-traded real estate investment trusts (REITs). The article reported that as per the MSCI U.S. REIT Index, the market value of publicly-traded REITs is down by about 26% this year. On the contrary, non-traded REITs are performing better with some funds offering up to 10% returns. This difference in returns has increased scrutiny of non-traded REITs among investors and regulators.

Non-traded REITs have benefited from strong cash inflows, as they have become popular with retail and institutional investors. Increased occupancies, record rents, interest rate hedges and other factors have also contributed to the excess returns they have experienced. However, over time, valuations for both public and private REITs should converge.

While there are valid reasons for the differences in valuations between publicly-traded and non-traded REITs, it is more important than ever to have a defensible valuation in the current environment. The Kroll Real Estate Advisory Group helps its REIT clients stay ahead of valuation reporting requirements. As the leading independent provider of global risk and financial advisory solutions, we leverage our unique insights, data and technology to help clients stay ahead of complex demands.