Non-traded REITs: New fund structures improve fees, liquidity and transparency

Non-traded REITs: New fund structures improve fees, liquidity and transparency

18 minute read

November 2023


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NAV REITs now account for 99.9% of fundraising for NTRs as demand climbs

  • Non-traded REITs (NTRs) are climbing in popularity, with a surge in product launches, as investors seek diversification, enhanced performance and income potential through alternative investments.
  • A new generation of NTRs—managed by large, established firms—offers periodic liquidity, greater transparency, and lower fees and commissions than earlier NTR launches that have received significant regulatory scrutiny.
  • Consistent with our belief that investors should have strategic allocations to both private and listed real estate, Cohen & Steers has launched a non-traded REIT, the Cohen & Steers Income Opportunities REIT.

Defining the differences between lifecycle and NAV REITs

Investor interest and assets under management in non-traded REITs (NTRs) have climbed significantly in recent years.

Three main drivers lie at the heart of this trend: 1) investor calls to diversify their portfolios with alternatives (such as private real estate), 2) a continued and growing demand for attractive total returns, particularly through current income, and 3) the pedigree of current managers and increased access to and use of NTRs among wealth advisors.

At the same time, investors have grown more confident in the structure of NTRs, represented by a new generation of launches in the past several years. By comparison, the earlier generation of NTRs drew significant scrutiny. We believe the differences between the earlier vehicles known as lifecycle REITs and the newer vehicles known as Net Asset Value (NAV) REITs warrant clarification and comparison.

The Securities and Exchange Commission issued an Investor Bulletin in 2015 cautioning investors about the risks of what is now the previous generation of NTRs, including their low liquidity, high fees and lack of transparency.

The asset management industry took note and looked to address these concerns by building a new generation of NTRs that seek to offer periodic liquidity, greater transparency, and lower fees and commissions. In fact, NAV REITs now account for 99.9% of all NTR fundraising, according to Robert A. Stanger & Company, which tracks the industry (Exhibit 1). It should be noted that NAV REITs should still be considered as having limited liquidity and they may be illiquid at times.

Next-generation NTRs now dominate fund raising
Next-generation NTRs now dominate fund raising

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Lower fees

The SEC, in its 2015 report, cautioned investors that lifecycle NTRs charged high upfront fees that represented up to 15% of the offering price. Those upfront fees were typically compensation for a firm or individual for selling the NTR. Ongoing service fees also reduced investor returns as did acquisition fees that charged a percentage of the value of assets the portfolio acquired or disposition fees that were charged when a property was sold.

The new generation of NAV REITs has decidedly lower fees, driven by lower upfront sales commissions and limits on ongoing servicing fees. In fact, each of the NTRs launched since 2016 (considered the point at which the new product structure took hold) offer multiple share classes, some with high initial investment requirements, with no selling commissions and significant limits on stockholder servicing fees. And more than 55% of all NTR sales in 2021 and 2022 combined had an effective maximum sales load of just 0.4%, according to Stanger.

New structure for liquidity

NTRs, by definition, are intentionally less liquid compared to listed REITs. NTR liquidity generally occurs at NAV, while liquidity in listed REITs is based on stock-exchange values, which can be lower or higher than NAV. However, NAV REITs employ new structures that allocate portions of their portfolios specifically to accommodate additional periodic liquidity while seeking to minimize drag on returns.

That structure contrasts with the earlier generation of lifecycle NTRs where redemptions, other than those allowed for death and disability, often came at a discount to their value or had other significant limitations. To get their full value, investors often had to wait to redeem until the fund was liquidated or listed on an exchange. The SEC, in its bulletin, cautioned that “investors with short time horizons or who may need to sell an asset to raise money quickly may not be able to do so with shares of a non-traded REIT.”

Monthly or quarterly repurchase programs offered by NAV REITs provide periodic liquidity to investors, subject to certain limitations, without requiring the sales of assets or a corporate liquidity event. What’s more, perpetual, open-ended structures provide more favorable terms and better alignment with investor interests.

While the newer NAV REITs offer more periodic liquidity opportunities, it is very important to treat these as long-term investments within an overall portfolio. That understanding is important to investment success in less or illiquid asset classes and vehicles, such as private real estate.

NAV REITs balance the periodic, limited liquidity with redemption limits designed to prevent managers from having to liquidate significant real estate holdings at deeply discounted prices to meet shareholder redemptions. In general, NAV REITs limit monthly redemptions to 2% and quarterly redemptions to 5% of the funds’ NAV.

The new generation of NTRs has decidedly lower fees, driven by lower upfront sales commissions and limits on ongoing stockholder servicing fees.

NTRs are intended only for investors with the financial means to hold their investments for relatively long periods of time, including during times of market stress and illiquidity. Consequently, we believe these controlled monthly redemptions balance investors’ need for ongoing liquidity with limits designed to help to prevent forced sales.

NAV REIT redemption terms generated headlines at the end of 2022 as some prominent funds experienced declining inflows and accelerating redemption requests. In our view, these funds’ redemption limits worked as intended, prorating available liquidity to investors while allowing the portfolio managers to maintain a long-term focus and not sell assets at distressed prices.

More transparency

NAV REITs seek to improve transparency by offering investors regular, fair and accurate share valuations, often provided by external, independent parties.

By contrast, the SEC cautioned in 2015 that share valuations were based on “periodic or annual appraisals of the properties owned by the non-traded REIT, and therefore may not be accurate or timely.”

The difference with NAV REITs is that monthly NAV pricing and detailed NAV reporting are supported by independent appraisers.

Stronger oversight

NAV REITs provide increased transparency (including more frequent and reliable valuations) over previous iterations. They are also being led by established, global firms with multiple layers of governance, including independent auditors and external appraisals as well as risk, trading and valuation committees. The growing popularity of NTRs within wealth channels also means NTRs are under much greater scrutiny and are expected to perform more rigorous due diligence.

The evolution of the non-traded REIT
The evolution of the non-traded REIT

The Cohen & Steers Income Opportunities REIT

Cohen & Steers believes that investors should have strategic allocations to both private and listed real estate. In fact, our analysis shows that a portfolio can be optimized when it includes allocations to private and listed real estate.

Private real estate also began to reprice starting in late 2022 amid slower growth and rising financing costs. We believe this will create a multi-year period of markdowns and entry points for investors.

Against this backdrop, Cohen & Steers has launched a non-traded REIT, the Cohen & Steers Income Opportunities REIT, Inc. (CNSREIT). CNSREIT’s strategy will seek to capitalize on market opportunities driven by cyclical and secular shifts in real estate usage and identify undervalued assets across all property types, sectors and geographies.

The structure of CNSREIT is largely aligned with the industry’s most recent launches, which we believe improve upon previous NTR iterations (from roughly a decade ago) by offering lower fees, improved liquidity features and greater transparency.

Like most other modern NTRs, CNSREIT will seek to offer monthly repurchases to provide limited liquidity, monthly NAV pricing and detailed NAV reporting, and independent appraisals.

However, CNSREIT’s policies and structure differ from those of its peers in several significant ways, including:

CNSREIT’s valuation policy

CNSREIT valuations begin with a third-party independent valuation advisor; valuations are then reviewed by Cohen & Steers. A third-party appraisal firm will complete an appraisal annually, and the separate independent valuation advisor will prepare an appraisal monthly.

We believe starting with an independent valuation—an external view that leverages wider market intelligence—helps facilitate consistent and unbiased appraisals.

CNSREIT’s redemption and liquidity policy

CNSREIT’s redemption policy is similar to that of offerings in the broader NTR market, in general. The underlying holdings are infrequently traded or illiquid, and the structure was designed to offer liquidity to investors through periodic repurchases up to pre-defined limits. Monthly redemptions in CNSREIT may be limited to 2% of the fund’s NAV and 5% of its NAV over one quarter.

This compares closely with the industry’s most recently launched NTRs.

However, CNSREIT’s approach differs in the way listed securities are managed within the portfolio. Similarly to other NTRs, the fund will be able to invest up to 20% of the portfolio in real estate–related securities(1) to help manage liquidity.

Within this allocation, we plan to invest in listed REIT equity securities, where Cohen & Steers has more than 35 years’ investment experience, as well as preferred and debt securities, where we have a 20-year investment track record. We believe an active allocation to listed real estate securities can offer enhanced return, additional sources of liquidity and additional diversification, and we see this as a key differentiator for CNSREIT.

The fund will also utilize listed REITS to capitalize on market dislocations and express proprietary investment views, as a complement to our direct property holdings.


Full information about the Cohen & Steers Income Opportunities REIT’s fees can be found in our summary of terms and in the fund’s prospectus. Financial advisors should discuss with their clients what share classes are appropriate.

We believe the fund’s fees have several notable features, which we have designed for shareholder alignment and long-term growth. These include a twelve-month fee waiver(2) and reduced management fee for two years(3) for certain asset classes (Exhibit 3).

How Cohen & Steers Income Opportunities REIT fees differ from peers
How Cohen & Steers Income Opportunities REIT fees differ from peers

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What we believe investors should know about Non-Traded REIT redemptions

December 2022 | 11 mins

Recent redemption limits placed on some notable Non-Traded REITs (NTRs) are generating headlines, but we believe there are several points investors may be missing. We do not think this reflects broad economic or systemic risk. Rather, this demonstrates how, as expected, listed real estate typically leads the private market in both selloffs and recoveries.
Read why we believe recent news that NTRs limited redemptions underscores the opportunity we see in listed real estate.