Rising mortgage rates and a lack of housing inventory are driving people who would normally be looking to buy homes to seek refuge in the rental market. As housing supply continues to dwindle and average people are priced out of the steep real estate market, renting is becoming an inevitable option. Those moving money into real estate investment trusts (REITs) benefit from this shift. But non-traded REITs are attracting new attention from federal regulators.
According to Wall Street Journalthe North American Securities Administrators Association (NASAA) is considering new policies that set limits on how many people can invest in non-traded REITs and new regulatory rules for their disclosures and activities.
REITs are one of the few ways that individuals can gain direct investment access to office towers, warehouses, hotels and other commercial real estate. Non-traded REITs raised a record $36.4 billion in 2021 and could reach the same level in 2022, according to investment banking firm Robert A. Stanger & Co.
One of the concerns about non-traded REIT investments is that while their documents spell out the risks and rewards associated with its investment options, NASAA claims that these strategies are not necessarily suitable for the small investors who typically buy them. . Some companies offer REIT investment options for as little as $500.
NASAA has not revised its policy on non-traded REITS since 2007. It is considering adding limits on the amount investors could buy and restrictions on certain practices.
Critics of the new oversight and rule changes claim NASAA’s proposal would prevent investors from pursuing what they believe are sound investment strategies.
Robert A. Stanger & Co. it also says that if the policies currently in place by the association are implemented and adopted by states, fundraising by non-traded REITs could drop by 20%.
Anya Coverman, president of the trade organization Institute for Portfolio Alternatives, said, “It’s in many ways a solution in search of a problem.”
Non-traded REITs, which are available to investors for 20 years, buy the same type of properties as publicly traded REITs. These REITs are not listed on stock exchanges, but are purchased through financial advisors and personal brokers. Mutual funds have battled with regulators in the past over perceived issues with risk disclosures and fees.
Highlights of today’s real estate investment news
The Flagship Real Estate Fund by financing has acquired a townhouse rental community in Charlotte, NC, for approximately $6.3 million. The Flagship Real Estate Fund has returned YTD 6.9% so far in 2022.
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