Understanding Non-Listed REITs
What is a REIT?
Simply stated, a REIT, or Real Estate Investment Trust, is created when a corporation or trust pools investors’ money to invest in real estate and real estate-related investments. Investors contribute to the REIT by purchasing shares and the REIT uses this capital to purchase buildings that align with the fund’s objectives. Property tenants pay rent to the REIT, which is passed along to the investors as income.
REITs are most often publicly traded on an open exchange such as the NYSE. Publicly-traded REITs offer diversification, liquidity and the potential for capital appreciation, like most stocks or mutual funds. Similarly, they are also subject to the fluctuations of a publicly-traded market. Non-listed REITs offer the benefits of listed REITs, but because they are not traded on an exchange, they offer the added benefit of a low degree of correlation to the broader securities markets.
As with any investment, there is no guarantee that REITs will be able to provide the projected benefits. Past performance is not a guarantee of future returns. Therefore, it is important that the potential investors read the prospectus for the particular REIT program being considered for investment before they invest.
How Does a REIT Work?
Investors contribute to the REIT by purchasing shares, and the REIT uses this capital to purchase properties that fit the REIT’s objectives. Tenants pay rent to the REIT, and that rent, minus fees and expenses of managing the REIT, is passed along as distributions to investors.1
This is a conceptual example and may not reflect the actual workings of the REIT.
The Features and Benefits of a Cole Capital REIT
When investing in quality net-leased commercial real estate properties, Cole Capital seeks to align our investment strategy objectives to shareholder goals.
1 There is no guarantee that investors will receive a distribution, and distributions paid have been derived from proceeds from the offering, from borrowings or from the sale of assets. Fees and expenses associated with the management of the REIT will impact the ability to pay distributions and the effects of any capital appreciation. There is no guarantee that the shares of the REIT and the underlying properties will appreciate in value.
2 Requires payments by the REIT of significant fees to the advisor and its affiliates, many of which face a conflict of interest.
3 Investors should be aware that returns and volatility may not have a favorable effect on their portfolio. Investors should consider their ability to withstand down periods in real estate and the lack of liquidity and price transparency.