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: what options may exist for getting out of a non-traded REIT before the sponsor provides a formal liquidity event?

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 liquidity can help determine which options are worth reviewing and how much flexibility the investor may have around timing and pricing.

EXIT OPTIONS

Not All Non-Traded REIT
Exit Options Are The Same

Getting out of a non-traded REIT usually begins with identifying which exit paths may be available for the specific investment.

Some investors may have access to a sponsor share repurchase or redemption program. Others may need to evaluate whether a secondary market transfer is possible. In some cases, the most practical option may be to continue holding the shares while monitoring sponsor updates and waiting for a future liquidity event.

These choices are not interchangeable. Each option may involve different timing, pricing, documentation, eligibility standards, and transfer requirements.

Investors evaluating non-traded REIT liquidity should avoid assuming that one exit path will be available simply because another investor had success with a different REIT.

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 their shares directly from the investor.

A redemption program can be useful when it is available, funded, and open to the investor's circumstances. However, it is important to understand that these programs are usually limited.

A REIT may cap the amount of shares it will repurchase during a month, quarter, or year. Programs may also be subject to board discretion, discounts, proration, hardship standards, death or disability provisions, holding period requirements, or other restrictions.

Redemption programs may also be suspended, amended, reduced, or terminated. For that reason, investors should review the current program terms rather than relying on materials received when the investment was originally purchased.

SECONDARY MARKET SALES

Selling Shares To Another
Investor May Be Possible

If a redemption program is unavailable, limited, or not attractive, some investors consider whether their non-traded REIT shares can be sold to another investor through a private secondary market transaction.

This type of transaction generally involves a potential buyer reviewing the specific REIT, the share position, the governing documents, transfer restrictions, sponsor requirements, and current market conditions.

Unlike publicly traded REIT shares, non-traded REIT shares do not trade on an exchange. There is typically no public order book, no daily market price, and no guarantee that a buyer will be available.

Even when buyer interest exists, a transfer may still require sponsor review, administrative approval, completed transfer forms, investor qualification materials, and other documentation before the transaction can be completed.

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. The estate may need to distribute assets, simplify administration, raise cash, divide property among beneficiaries, or address practical concerns around holding 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.

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 any transaction.

A sale or redemption may result in gain or loss. Shares held in an estate may involve basis considerations. Shares held in an IRA or other retirement account may involve custodian rules and tax treatment that differs from personally held shares.

Investors should not assume that the liquidity option with the highest stated price is automatically the best after-tax outcome.

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 same amount an investor can receive in a private sale. Statement values and transaction values can differ, especially when shares are not publicly traded.

Another mistake is waiting until liquidity is urgently needed. Non-traded REIT reviews can take time, particularly when sponsor approval, transfer documents, account records, estate documents, 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, and market demand can vary significantly from one program to another.

Missing documentation can also slow the process. Current statements, ownership records, tax forms, subscription documents, sponsor notices, and estate or trust authority documents may all be relevant during a review.

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, and buyer demand.

A REIT with a functioning repurchase program may present a different set of options than a REIT with a suspended program. A mature REIT approaching a potential liquidity event may also be evaluated differently from a program with uncertain timing.

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.

DOCUMENTATION

Complete Records Can Help
Clarify Available Options

Before an investor can meaningfully evaluate how to get out of a non-traded REIT, the specific position usually needs to be reviewed.

Useful records may include a recent account statement, the name of the REIT, share quantity, account ownership information, original investment documents, sponsor correspondence, tax reporting records, and any documents showing authority to act on behalf of a trust, estate, entity, or retirement account.

These materials can help determine whether redemption is available, whether a transfer may be permitted, what sponsor requirements may apply, and whether the position may attract buyer interest.

Without complete information, investors may receive incomplete or unrealistic guidance about their liquidity options.

INVESTOR EXPECTATIONS

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, the current share repurchase program, transfer restrictions, sponsor procedures, 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 that means considering a price below the value shown on a statement.

Neither choice is automatically right or wrong. The better question is whether the available options fit the investor's current needs, risk tolerance, timing, and financial objectives.

CONFIDENTIAL REVIEW

Reviewing Potential Options
Before Making A Decision

Investors seeking liquidity from a non-traded REIT should begin with an investment-specific review rather than relying on assumptions about the broader market.

AIL reviews non-traded REIT positions and helps investors understand potential liquidity opportunities based on the specific investment, ownership structure, documentation, transfer considerations, and available market information.

Investors considering a review may submit information through AIL's confidential review portal for an evaluation of investment-specific factors and potential liquidity considerations.