A firm established last year to look at nontraded REITs, Blue Vault Partners, LLC, has published its 2010 first quarter review, which RetailTraffic overviewed. Not surprisingly, nontraded REITs are expected to raise 17% more in 2010 than in 2009, or about $7 billion. Due to the quick and reasonable liquid access to real estate ownership with professional management, REITs have done very well this year. So well, in fact, an investor with who we are negotiating on a deal actually brought up that he could get over a 10% yield with a nontraded REIT.
But therein lies the problem - that's not sustainable. The fees and overhead costs of running multi-billion dollar REITs can be significant and these REITs don't tend to use a lot of leverage. As the report points out, the median yield is only about 6.5%, which makes sense in our experience. For deals we've seen this year, at least with the health care REITs, the yields being sought range anywhere from 7.5% to 10% or 11%. Once salaries, overhead, fees, etc. are tacked on, how many hundreds of basis points are eaten? The other issue with investing in a REIT is limited use of leverage. The REITs that are still raising money have effective leverage of only 30%, according to the report. The REITs closed for the year at least have a leverage ratio of nearly 60%, but only about a third of REITs are closed. Though the market got leverage-drunk and is learning many lessons, 30% is way to low to generate a +10% yield on most investments.
Blog Archive
Popular Posts
-
You enjoy the weekend, have a great trip, and then you may be home Sunday morning, getting ready for school on schedule on Monday. If...
-
Another sign the real estate market is coming back, not least the economy, is new hotel development, this time in downtown Cincinnati. The B...
-
Students often have great difficulty in writing your own essay , especially if you don't have the time or very less time to do a lot ...
-
Each transaction has its own housing property real estate and personal Property in the South of France . It is also possible for the prope...
-
As a further downturn in senior mortgage Search recession is becoming increasingly popular. There is also some confusion, because the natu...
-
MY LIFE IN A BAG
-
Most of the people in this world dream that they have a big nice house with huge backyard so that their children can play over...