NON-TRADED REIT LIQUIDITY
How To Get Out
Of A Non-Traded REIT
Investors often purchase non-traded REIT shares with the expectation that the investment will be held for several years until the sponsor completes a future liquidity event. That event may involve a portfolio sale, merger, listing, liquidation, or another transaction intended to provide investors with an exit.
Over time, however, an investor's circumstances can change. Income needs may shift, estate matters may arise, a portfolio may need to be rebalanced, or the investor may simply decide that continuing to hold the position no longer makes sense.
When that happens, the question becomes practical: how can an investor get out of a non-traded REIT before the sponsor provides a formal liquidity event?
Depending on the specific investment, potential exit options may include a sponsor share repurchase program, a private secondary market sale, a tender offer, or continuing to hold the shares while waiting for a future sponsor-led liquidity event.
EXIT OPTIONS
How Can You Get Out
Of A Non-Traded REIT?
There is no single exit process that applies to every non-traded REIT. The options available to a shareholder depend on the specific REIT, sponsor policies, transfer restrictions, buyer demand, current liquidity programs, and the investor's ownership structure.
One potential option is a sponsor share repurchase or redemption program. If the program is open and the investor meets the applicable requirements, the REIT may repurchase some or all of the investor's shares according to the program's terms.
Another option may be a private secondary market transaction in which the shareholder transfers shares to another investor. Tender offers can also periodically create liquidity opportunities under specified terms.
If none of these alternatives is available or attractive, an investor may choose to continue holding the investment while monitoring the sponsor's plans for a future listing, merger, liquidation, asset sale, or other liquidity event.
Investors evaluating broader options to sell non-traded REIT shares should review the alternatives available for the specific investment rather than assuming that one exit path applies to every REIT.
WHY INVESTORS SEEK LIQUIDITY
Liquidity Needs Often
Start With A Life Event
Non-traded REIT liquidity questions often begin with a specific investor need rather than a market view.
Some investors need access to capital for retirement expenses, medical costs, family obligations, estate administration, tax planning, or other financial priorities. Others may want to reduce exposure to real estate, address reduced distributions, simplify a portfolio, or move away from an investment that no longer fits their objectives.
Trusts, estates, and beneficiaries may also face liquidity questions after the death of an original investor. In those situations, the issue may not be whether the investment is good or bad, but whether it is practical for the current owner to continue holding it.
Understanding the reason for seeking liquidity can help an investor evaluate which exit options are worth reviewing and how much flexibility may exist around timing and pricing.
REDEMPTION PROGRAMS
Sponsor Redemption Programs
Are Often The First Option Reviewed
Many non-traded REITs have offered share repurchase programs, sometimes referred to as redemption programs. These programs may allow investors to request that the REIT repurchase shares directly from the shareholder.
A redemption program can be useful when it is available, adequately funded, and open to the investor's circumstances. However, investors should understand that these programs are often subject to limitations.
A REIT may cap the amount of shares it will repurchase during a month, quarter, or year. Programs may also include pricing formulas, holding-period requirements, hardship provisions, death or disability provisions, proration, or other eligibility standards.
Redemption programs can also be suspended, amended, reduced, or terminated. For that reason, investors should review the current program terms rather than relying on documents received when the investment was originally purchased.
Even when a redemption program exists, submitting a request does not necessarily mean the investor's entire position will be repurchased immediately.
SECONDARY MARKET SALES
Can Non-Traded REIT Shares
Be Sold To Another Investor?
Potentially. If a redemption program is unavailable, limited, suspended, or not attractive to the investor, some non-traded REIT positions may be eligible for a private secondary market transaction.
In this type of transaction, a potential buyer evaluates the specific REIT, share position, ownership registration, transfer restrictions, sponsor requirements, documentation, and current market conditions.
Unlike publicly traded REIT shares, non-traded REIT shares do not trade on a national securities exchange. There is generally no public order book, continuously quoted price, or guarantee that a buyer will be available.
Even when buyer interest exists, a transfer may require sponsor review, transfer-agent processing, completed transfer documents, investor qualification materials, medallion signature guarantees, or other administrative requirements.
Investors considering this option can learn more about how the non-traded REIT secondary market works, including pricing, buyer demand, transfer restrictions, and other liquidity considerations.
TENDER OFFERS
A Tender Offer May Provide
Another Potential Exit
Tender offers can provide another potential source of liquidity for certain non-traded REIT shareholders.
In a tender offer, an offeror generally proposes to purchase shares from eligible shareholders under specified terms. Those terms may include an offer price, expiration date, maximum number of shares sought, and other conditions.
Tender offers may be initiated by the REIT, an affiliated entity, or an unaffiliated third-party purchaser. Shareholders typically decide whether to participate during the stated offer period.
A tender offer differs from a sponsor redemption program because the offer is governed by its own stated terms. It also differs from an individually negotiated private secondary market transaction, where a specific shareholder position may be evaluated separately.
Tender offers are not continuously available, and pricing or other terms may vary significantly from one offer to another.
FUTURE LIQUIDITY EVENTS
Waiting For A Sponsor-Led
Liquidity Event Is Another Option
Some investors may decide that the most appropriate course is to continue holding the non-traded REIT until the sponsor completes a planned liquidity event.
Depending on the REIT, a future liquidity event could involve a sale of the portfolio, merger, listing on a national securities exchange, liquidation, recapitalization, or another transaction affecting shareholder liquidity.
Waiting can allow an investor to participate in a future sponsor-led transaction, but the timing and outcome of that event may be uncertain.
Investors considering this approach should monitor sponsor communications, SEC filings where applicable, changes in distributions, asset sales, financing activity, repurchase programs, and other developments that may affect the expected liquidity timeline.
ESTATE AND TRUST SITUATIONS
Liquidity Questions Can Become
More Complex After Death
Non-traded REIT shares held by an estate or trust can present additional considerations. After an investor passes away, heirs, beneficiaries, executors, trustees, or attorneys may need to determine whether the position should be held, transferred, redeemed, or evaluated for potential liquidity.
These situations often involve more than investment performance. An estate may need to distribute assets, simplify administration, raise cash, divide property among beneficiaries, or address practical concerns around continuing to hold an illiquid investment.
The way the shares are titled can affect the process. Shares held individually, jointly, through a trust, in an IRA, or by an entity may each require different documentation and transfer procedures.
Attorneys, trustees, and estate representatives may find additional information on AIL's attorneys and trustees resource page.
TAX CONSIDERATIONS
Tax Issues Should Be Reviewed
Before Making A Decision
Tax considerations can affect the decision to hold, redeem, or sell non-traded REIT shares. The potential tax result may depend on the investor's cost basis, holding period, account type, estate status, retirement account structure, and the price received in a transaction.
A sale or redemption may result in a gain or loss. Shares held in an estate may involve basis considerations. Shares held in an IRA or another retirement account may involve custodian requirements and tax treatment that differs from personally held shares.
Investors should not assume that the liquidity option with the highest stated price will automatically produce the best after-tax result.
A qualified tax advisor should review the potential tax consequences before an investor makes a final decision.
COMMON MISTAKES
Common Mistakes Investors Make
When Seeking Liquidity
One common mistake is assuming that the value shown on an account statement is the amount an investor can necessarily receive in a sale. Statement values, estimated net asset values, redemption prices, tender prices, and private transaction prices may all differ.
Another mistake is waiting until liquidity is urgently needed. Non-traded REIT transactions can take time, particularly when sponsor approval, transfer documents, account records, estate documents, signature guarantees, or custodian procedures are involved.
Investors may also assume that all non-traded REITs operate the same way. In reality, share repurchase programs, transfer restrictions, portfolio composition, sponsor procedures, financial performance, and buyer demand can vary significantly from one program to another.
Missing or outdated documentation can also slow the process. A recent account statement and accurate ownership information are often useful starting points when evaluating available options.
SPONSOR DIFFERENCES
One Non-Traded REIT
May Differ From Another
Investors sometimes use the phrase "non-traded REIT" as though all programs operate the same way. They do not.
Liquidity considerations can vary based on sponsor policies, portfolio performance, asset type, leverage, distribution history, redemption availability, transfer procedures, expected liquidity timelines, and buyer demand.
A REIT with a functioning repurchase program may present a different set of options than a REIT with a suspended or oversubscribed program. A mature REIT approaching a potential liquidity event may also be evaluated differently from a program with an uncertain exit timeline.
Investors researching specific programs may find additional information in AIL's educational resources covering CIM Real Estate Finance Trust, KBS Real Estate Investment Trust III, Highlands REIT, and Strategic Student & Senior Housing Trust. AIL's Non-Traded REIT Directory provides issuer-specific information on repurchase status, liquidity considerations, and secondary-market options.
DOCUMENTATION
What Information May Be Needed
To Evaluate Exit Options?
Before an investor can meaningfully evaluate how to get out of a non-traded REIT, the specific position usually needs to be identified and reviewed.
A recent account statement is often a useful starting point because it may show the investment name, number of shares, registration type, custodian, and other ownership information.
Additional records may include original investment documents, sponsor correspondence, transfer forms, tax reporting records, and documents establishing authority to act on behalf of a trust, estate, entity, or retirement account.
These materials can help determine whether a redemption program is available, whether a private transfer may be permitted, what sponsor requirements may apply, and whether the position may attract buyer interest.
COMPARING EXIT OPTIONS
The Right Path Depends
On The Specific Position
Getting out of a non-traded REIT is rarely as simple as selling a publicly traded investment. The practical options depend on the REIT, current repurchase programs, transfer restrictions, sponsor procedures, tender activity, buyer demand, ownership structure, documentation, and the investor's timing needs.
Some investors may be comfortable waiting for a future sponsor-led liquidity event. Others may prefer to evaluate whether earlier liquidity is possible, even if a potential transaction price differs from the value shown on an account statement.
Investors who are ready to evaluate a sale may also review AIL's guide on how to sell a non-traded REIT for additional information about the sale and transfer process.
No single exit option is automatically appropriate for every investor. The available alternatives should be evaluated in the context of the specific investment, timing needs, financial objectives, and potential costs or tradeoffs.
FREQUENTLY ASKED QUESTIONS
Common Questions About Getting
Out Of A Non-Traded REIT
Can you get out of a non-traded REIT?
Potentially. Depending on the specific REIT, an investor may be able to seek liquidity through a sponsor share repurchase program, private secondary market transaction, tender offer, or future sponsor-led liquidity event. Availability varies by investment.
Can I sell a non-traded REIT before it liquidates?
In some cases, yes. Certain non-traded REIT shares may be transferable to another investor before the REIT completes a liquidation or other planned liquidity event. The transaction may be subject to sponsor approval, transfer restrictions, buyer demand, and administrative requirements.
What happens if a non-traded REIT redemption program is suspended?
If a redemption or share repurchase program is suspended, shareholders generally cannot rely on that program for liquidity while the suspension remains in effect. Depending on the investment, other alternatives may include a private secondary market transaction, a tender offer, or continuing to hold the shares.
Can I sell non-traded REIT shares to another investor?
Potentially. Some non-traded REIT shares may be transferred through private secondary market transactions, although transfer restrictions, sponsor requirements, investor qualifications, and buyer demand can affect whether a transaction is possible.
What is the fastest way to get out of a non-traded REIT?
There is no single fastest option for every non-traded REIT. Timing can depend on whether a redemption program is currently accepting requests, whether a tender offer is available, whether a secondary market buyer is interested, and how quickly required transfer documentation can be completed.
Do I have to wait for the REIT to liquidate?
Not necessarily. Some investors may have access to liquidity before a final liquidation through share repurchase programs, tender offers, or private secondary market transactions. Other investments may have limited alternatives, making a future sponsor-led liquidity event the primary potential exit.
Can an inherited non-traded REIT be sold?
Potentially. Inherited shares may be eligible for redemption, transfer, or sale depending on the REIT and the way ownership is registered. Estates, trusts, heirs, or beneficiaries may need additional documentation establishing authority and ownership before a transaction can be processed.
Why might a non-traded REIT sell for less than the value on my statement?
A statement value or estimated net asset value does not necessarily represent a price at which shares can be immediately sold. Private transaction pricing may reflect buyer demand, liquidity limitations, transfer restrictions, financial performance, expected holding periods, and uncertainty surrounding future liquidity events.