Poor REIT sales signal potential cuts in valuations
The anemic start to the year for sales of nontraded real estate investment trusts is yet another indication of the tough market for commercial real estate investors, which is leading some market participants to expect a reduction in the value of some REITs, particularly the popular net asset value or NAV products.
Unlike listed REITs, nontraded REITs don’t trade, so the market doesn’t set their value. Instead, nontraded REITs rely on internal appraisals to determine the value of their real estate assets, a key component to understanding what a specific REIT might be worth.
According to Robert A. Stanger & Co. Inc., in the first two months of the year, sales of nontraded REITs by financial advisors totaled just about $900 million, for an annualized rate of $5.4 billion. That compares with $10.2 billion in sales in 2023 and $33.3 billion the previous year, according to Stanger.
With listed REITs seeing declines in value of 30% or more, some market observers have been wondering when NAV REITs will lower their values. From the start of January 2022 to October 27, 2023, the S&P United States REIT Index declined 35%, while many nontraded REITs’ valuations saw no such slump.
Rising interest rates since the start of 2023 have hurt REITs because the cost of capital rises. COVID-19 also has had a long-term impact on commercial real estate as more employees are working from home, driving down the occupancy of office buildings in cities.
NAV REIT bellwether Blackstone Real Estate Income Trust Inc. reported a net asset value of $14.53 per share in January 2022, and that had increased eight cents per share by last October, the same period over which the S&P U.S. REIT Index declined 35%. Known as BREIT, the Blackstone REIT’s
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