ELLICOTT CITY, Md., Aug. 8, 2013 (GLOBE NEWSWIRE) -- The typical distractions of summer vacations, weekends at the beach and family barbeques have not slowed investor demand for public non-listed real estate investment trusts (REITs), non-listed business development companies (BDCs) and other direct participation programs (collectively, direct investments). Total fundraising by the direct investment industry in July topped $2.5 billion, eclipsing the July 2012 total of $947 million and setting an all-time one month record according to The Investment Program Association (IPA), a trade association for non-listed direct investment vehicles, and Robert A. Stanger & Company , an independent investment banking firm that specializes in direct investment securities. Data developed by Stanger show equity capital flows to direct investments so far in 2013 have reached almost $13.3 billion compared with $7.4 billion during the same period in 2012 – a 78% year-over-year increase.
Investors Diversifying Portfolios With Hard Assets and Investments in Capital-Constrained Sectors
Most direct participation programs and non-listed REITs available today offer the average investor a way to own interests in otherwise non-affordable tangible assets such as institutional quality real estate, oil and gas reserves, and equipment. These underlying assets tend to respond to broad economic and capital market changes differently than exchange-traded stocks. BDCs provide financing to small and mid-sized businesses, and in recent years have sought to capitalize on the relative lack of sufficient debt capital relative to demand in these markets.
Another perceived advantage of direct investments relates to the desire among investors in turbulent economic times for current income as opposed to more speculative capital growth. Increasing the portion of total return from income as opposed to capital appreciation is a recognized risk-reduction strategy. In addition, many direct investments provide cash distribution rates which are attractive relative to fixed income alternatives and which can grow in response to inflation.
"Adding investments in hard assets to a portfolio of financial assets can reduce portfolio volatility and improve the risk/return profile," said Kevin M. Hogan, President and Chief Executive Officer of the Investment Program Association. The dominant form of hard asset investment in the direct investment industry in recent years has been real estate. According to Stanger, approximately 82% of July total investment and 80% of year-to-date total investment have been directed toward public non-listed REITs. These investments attracted approximately $2.1 billion of direct investment capital in July, the highest monthly total for non-listed REITs on record and a 176% increase from July 2012. (See table below.)
"The economic environment and fundamentals for real estate investing remain attractive," said Kevin Gannon, Managing Director of Stanger. He cited the gradually improving U.S. economy, favorable trends in rental rates and occupancy in major markets, and low cost of debt financing secured by real estate as positive factors. A broad array of real estate asset classes and REIT offerings available to the public and the on-going evolution of enhanced product structures are also contributing to investor and financial advisor interest in these products.
Investors are also seeking opportunities through BDCs, which provide financing for growth to businesses in a wide variety of industries which are otherwise capital constrained. "The BDC portion of the direct investment market did not exist four years ago," said Hogan. "Now, it is one of the most active sectors of the public direct investment market."
Investment in BDCs reached $464 million in July, a 166% increase above July 2012 and a record month. Year-to-date investment in non-listed BDCs topped $2.5 billion, compared with $1.6 billion raised in the comparable period last year.
| Investment In Publicly Registered DPPs, Non-Listed REITs & BDCs ($ in millions) | ||||||
| July 2012 | July 2013 | % Chg 2012- 2013 | July 2012 YTD | July 2013 YTD | % Chg 2012- 2013 | |
| REAL ESTATE | ||||||
| Equity NL-REITs | $685.7 | $2,089.8 | 204.8% | $5,326.2 | $9,877.5 | 85.5% |
| Mortgage NL-REITs | 72.6 | 3.7 | -94.9% | 415.7 | 788.0 | 89.5% |
| Mortgage Loan LPs/LLCs | 0.3 | 0.5 | 66.7% | 2.1 | 1.2 | -41.7% |
| TOTAL REAL ESTATE | 758.5 | 2,094.0 | 176.1% | 5,744.0 | 10,666.7 | 85.7% |
| BDCs | 174.3 | 464.3 | 166.4% | 1,572.6 | 2,523.6 | 60.5% |
| EQUIPMENT LEASING | 14.2 | 3.9 | -72.5% | 123.0 | 75.2 | -38.9% |
| OIL & GAS / MISC | 0.0 | 1.5 | n/a | 0.0 | 5.9 | n/a |
| TOTAL SALES | $947.1 | $2,563.7 | 170.7% | $7,439.7 | $13,271.4 | 78.4% |
| Source: Robert A. Stanger & Company, Inc., Shrewsbury NJ | ||||||
Successful Program Liquidations Spur Reinvestment
"Another significant catalyst for this record investment level has been listings and liquidations of matured non-listed REITs formed in prior years," said Keith Allaire, Managing Director of Stanger. In contrast to the financial and real estate meltdowns experienced in 2007-8, investors are increasingly seeing positive real estate investment performance as commercial real estate property values have improved. "Sponsors who provide attractive operational distributions and then ice the cake with returns of capital in excess of the amount invested can expect to see a significant portion of shareholders reinvest some liquidation proceeds in another product of the sponsor," said Allaire.
Stanger reports that so far in 2013 over $11 billion of liquidity events have occurred among public non-listed REITs and an additional $2.9 billion have been announced and are awaiting closing. "Two sponsors each raised more than $500 million in July and both have successfully executed liquidity events in 2013: American Realty Capital and Cole Real Estate Investments," said Gannon. (See table below.)
| Top 10 Direct Investment Program Sponsors Ranked By Year-To-Date 2013 Capital Raised * ($ millions) | ||||||||
| Sponsor | Category(s) | July 2013 Raise | YTD 2013 Raise | |||||
| 1 | American Realty Capital | REIT/BDC | $736.7 | $4,292.1 | ||||
| 2 | Franklin Square Capital Partners | BDC | 283.0 | 1,603.0 | ||||
| 3 | Cole Real Estate Investments | REIT | 503.3 | 1,312.9 | ||||
| 4 | Griffin Capital Corporation | REIT | 298.9 | 1,084.5 | ||||
| 5 | CNL Financial Group | REIT/BDC | 132.8 | 789.4 | ||||
| 6 | Dividend Capital | REIT | 236.9 | 763.3 | ||||
| 7 | NorthStar Realty Finance Corp | REIT | 1.7 | 517.2 | ||||
| 8 | Hines Interest Limited Partnership | REIT/BDC | 62.1 | 332.5 | ||||
| 9 | W.P. Carey Inc. | REIT | 76.4 | 284.7 | ||||
| 10 | UMTH Land Development LP | REIT | 0 | 266.5 | ||||
| * | Capital raised excludes capital from dividend reinvestment programs | |||||||
| Source: Robert A. Stanger & Company, Shrewsbury, NJ | ||||||||
Robert A. Stanger & Co., Inc ., a Shrewsbury, New Jersey-based investment banking firm specializing in real estate and direct participation program securities, provided the fundraising data cited herein. The company is a leading source of information and research on the direct investment industry and is regularly involved in real estate mergers and acquisitions, debt and equity financings, real estate appraisals and securities valuations. Stanger is also the publisher of The Stanger Report , Stanger's Market Pulse , and The Stanger Digest , publications focused on the direct investment industry.
The Investment Program Association (IPA) was formed in 1985 to provide effective national leadership for the Direct Investment industry, including Non-Listed REITs (NLREITs), Business Development Companies (BDCs), Oil and Gas, and Equipment Leasing Programs. For the last 28 years, the IPA has successfully championed the growth of such products, which have increased in popularity with financial professionals and investors alike. It is estimated that at as of June 30, 2013, direct investments are held in the accounts of more than 1.5 million individual investors. The mission of the IPA is advocating direct investments through education. Request your free copies of the Guide to Understanding Direct Investments and take the free IPA e-learning course today, or visit the IPA online for more information about becoming a member .
To stay up-to-date with IPA news, follow @IPADirectInvest on Twitter.
MEDIA CONTACT: John McInerney | Makovsky | 212.508.9628 | ORGANIZATION CONTACTS: Stanger Contact: Keith Allaire | Managing Director | (732) 389-3600x225 |
