With increasing frequency, given the current low interest rate environment, retail investors are steered into investing in products appearing to offer more advantageous yields than are available in traditional interest-bearing investments such as money market funds and CDs. One example is the publicly registered non-exchange traded real estate investment trust (“REIT”) or “non-traded REIT.” While non-traded REITS share certain similarities with their exchange-traded brethren, they differ in a number of key respects.
To begin, a non-traded REIT is not listed for trading on a securities exchange. Consequently, the secondary market for non-traded REITs is typically very limited in nature. Furthermore, while some of an investor’s shares may be eligible for redemption after a certain passage of time (e.g., one year), and, even then, on a limited basis subject to certain restrictions, such redemption offers may well be priced below the purchase price or current price of the non-traded REIT. Thus, lack of liquidity and pricing inefficiency are two disadvantages to non-traded REITs, as opposed to REITs that trade on an exchange (e.g., NYSE: BXP – Boston Properties).