Private RIETs
Types of RIETs
Private REITs
Private REITs, or private placement REITs, are a type of REIT that doesn't have to register with the SEC. This means they aren’t regulated by the SEC and their shares aren’t traded on public stock exchanges like the NYSE.
Public REITs
Publicly traded REITs are regulated by the SEC and are listed on major stock exchanges like the NYSE. Individual investors can buy and sell shares of these REITs on these public exchanges.
Non-Traded REITs
Non-traded REITs are similar to publicly traded REITs in that they are registered with the SEC and must follow the same regulations and reporting rules. Unlike publicly traded REITs, which are bought and sold on stock exchanges, non-traded REITs are not listed on these exchanges.
Comparison Table: Publicly Traded vs. Non-Traded vs. Private REITs
Availability
Available to all investors; traded on exchanges like NYSE and NASDAQ
Available to all investors; not traded on exchanges
Available only to accredited investors; not traded on exchanges
Liquidity
High liquidity; shares can be bought and sold easily on exchanges
Low liquidity; shares are not traded publicly, difficult to sell
Very low liquidity; shares are not traded and difficult to sell
Investment Process
Similar to other public stocks; standard trading fees apply
Purchased through broker-dealers; high up-front fees
Purchased through broker-dealers; high investment minimums and fees
Valuation
Market determines value; changes daily, highly correlated with stock market
Valued based on appraisals of owned properties; less correlated with stock market
Valued based on appraisals of owned assets; no market correlation
Regulation
Regulated by SEC; must make regular disclosures and filings
Regulated by SEC; must make regular disclosures and filings
Not regulated by SEC; must conform to Regulation D
Management Focus
Often focuses on short-term earnings due to market pressure
More focus on long-term investment goals
Typically focuses on long-term investment goals
Disclosure
Required to provide quarterly and annual financial reports
Required to provide regular SEC disclosures
Little-to-no public information; varies by investment
Minimum Investment
Typically $1,000 to $2,500 per share
Usually $10,000 to $100,000
Generally high minimums; varies by investment
Fees
Standard trading fees
High upfront fees and potential ongoing fees
High fees; may include broker-dealer commissions
Taxation of Distributions
Usually taxed as normal income
Usually taxed as normal income
Usually taxed as normal income
Risk Considerations
Subject to market volatility and price fluctuations
Less market volatility but higher illiquidity risk
High illiquidity risk; less public information on performance
General Structure
Unit Holders (Investors)
Unit holders are individuals or institutions that invest money into the REIT by purchasing units (similar to shares). They are the owners of the REIT and expect returns in the form of dividends, which come from the income generated by the REIT's real estate assets. These investors benefit from the REIT's rental income and any capital appreciation of the real estate assets.
REIT (Real Estate Investment Trust)
The REIT itself is a legal entity that owns and operates income-generating real estate. It acts as a bridge between the unit holders and the real estate assets. The REIT collects rental income from the properties it owns and distributes the majority of this income to the unit holders as dividends.
Trustee
The trustee is an independent party that holds the legal title to the REIT’s assets on behalf of the unit holders. The trustee acts in the best interest of the unit holders and ensures that the REIT is managed according to the relevant laws and the REIT's trust deed. The trustee may also be responsible for overseeing the REIT’s compliance with regulatory requirements and ensuring that distributions are made to the unit holders. The trustee charges fees for their services, which are paid by the REIT.
REIT Manager
The REIT manager is appointed to manage the REIT’s day-to-day operations and overall strategy. They are responsible for making decisions regarding the acquisition, disposal, and management of the real estate assets within the REIT. In return for these services, the REIT manager receives a management fee from the REIT.
Property Manager
The property manager is appointed by the REIT manager to handle the operational aspects of managing the real estate assets. This includes leasing, property maintenance, tenant management, and ensuring that the properties remain in good condition. The property manager plays a crucial role in ensuring that the real estate assets generate consistent rental income. For their services, the property manager receives management fees from the REIT as well.
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