Non Traded Real Estate Investment Trusts


Real Estate Investment Trust Explained

REIT Explained: What is a Non-Traded Real Estate Investment Trust?

A real estate investment trust refers to a trust company that owns, operates, and finances income-generating real estate investments. REITs are designed like mutual fundsMutual FundsA mutual fund is a pool of money collected from many investors for the purpose of investing in stocks, bonds, or other securities. Mutual funds are owned by a group of investors and managed by professionals. Learn about the various types of fund, how they work, and benefits and tradeoffs of investing in them, which are essentially pooled funds from many investors used to generate economies of scale and gain access to investment options that they would not normally be able to access individually.

Real estate investments are characterized by being very illiquid, expensive, requiring high upkeep, and being inhomogeneous. Such factors make investing in real estate very difficult for everyday retail investors. However, REITs provide the opportunity for many retail investors to pool their funds together. With the assistance of a professional real estate portfolio manager, retail investors can invest in real estate without dealing with the difficulties of buying, managing, and financing the individual properties themselves.

REITs follow a simple business model in which the REITs are companies that are set up to:

  • Buy properties
  • Redistribute rents to shareholders as dividends
  • Environment Quality Act Trust

    A trust under paragraph 149 of the Act. This is a trust that was created because of a requirement imposed by section 56 of the Environment Quality Act, R.S.Q., c. Q-2. The trust must meet all of the following conditions:

    • the trust is resident in Canada
    • the only persons that are beneficially interested are one of the following:
    • Her Majesty in right of Canada
    • Her Majesty in right of a province
    • a municipality that is exempt because of subsection 149 from tax under Part 1 on all of its taxable income

    What Are The Tax Benefits

    REIT’s dont have to pay corporate income tax, so long as they retain their REIT stature. Theyre subject to an IRS rule that requires these corporations to pay out 90% of their taxable income as dividends. Because they do not pay corporate taxes, they may pay out rather than pay taxes.A special benefit of investing in REIT’s is that the REIT depreciates the real estate assets against income. The income is then taxed at the lower long-term capital gains rates.Another advantage of REIT’s is that they dont generate, “Unrelated Business Taxable Income” or , an important consideration for investors who own these investments in a tax-deferred or tax-exempt account such as an IRA or 401, or in a charitable remainder trust. Because a REIT does not pay corporate taxes, taxable REIT dividends dont usually qualify for the low rate that applies to most equity dividendscurrently a maximum of 15%. Rather, when tax is due, its at your current rate for regular income, up to 35% at the federal level. Long-term capital gains distributions, on the other hand, are taxed at the lower rate.

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    How Do You Maintain Reit Status

    In order to maintain REIT status, a REIT must distribute at least 90% of its taxable income in a tax year. In conjunction with the distribution, a REIT is entitled to a deduction for such dividends paid and therefore REITs will generally distribute at least 100% of its taxable income to avoid entity-level tax.

    Real Estate Investment Trusts


    A real estate investment trusts are a security that invests in real estate directly either through properties or mortgages. REITS generally pool capital of numerous investors to purchase a cadre of properties. These properties can include hotels, shopping malls, apartment buildings or office complexes. These properties are usually too expensive for the average investor to purchase on his or her own.

    Generally, REITs can be publicly or privately held. Publicly held REITs can be sold on an exchange and publicly traded. Non-traded REITs are sold through broker-dealers and are private. Both exchange traded REITS and non-traded REITs investment in real estate and are subject to the same IRS requirement that the REIT must distribute ninety percent of its taxable income to investors. There are four main differences between REITS traded on an exchange and non-traded REITs:

  • The Listing Status. Non-traded REITs are not listed on an exchange while traded REITs are listed on exchange. The main difference is that traded REITs provide liquidity and price transparency and non-traded REITs do not.
  • The Tradable Market. Non-traded REITs have a very limited market and while some shares may be redeemable by the REIT or a secondary market may pay a significantly reduced price for the REIT shares, the exchange traded REITS are easy to buy and sell.
  • Whether traded or non-traded, REITs are generally classified as equity, mortgage, or hybrid.

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    Pooled Registered Pension Plans

    Pooled Registered Pension Plans must operate through an arrangement acceptable to the Minister. All property held in connection with a PRPP is required to be held in trust by the administrator on behalf of the plan members. As a result, a PRPP is generally treated as a trust for tax purposes, the administrator is the trustee of that trust, the members are the beneficiaries, and the trust property is the property held in connection with the plan. A pooled registered pension plan trust will be excluded for purposes of the 21 year deemed disposition rule and other specified measures. When certain criteria are met, a pooled registered pension plan trust will be exempt from Part 1 tax.

    For more information, go to Pooled registered pension plans.

    Look Under The Hood: Non

      Posted by Chris Cordaro on February 22, 2013 3min read

    A prospective client asked me to take a look at a non-traded Real Estate Investment Trust that bought from a broker a number of years back. This is not the first non-traded REIT Ive analyzed and the results are usually not pretty, but I tried to keep an open mind. The REIT was paying a 6.5% dividend yield and had declined 25% from its initial purchase price so the prospective client thought the worst was over. But once I took a look under the hood, it appeared that the prospect might have bought a lemon.

    At the 50,000 foot level, analyzing a real estate investment is a fairly simple exercise. You want to estimate the present value of the future steam of cash flows that the investment will generate and compare it to other investments in the market.

    The first thing I looked at was the dividend. This REIT was paying a healthy 6.5% dividend. In examining the most recent 10Q , I found that the REITs Funds From Operations were only 4.2% per share. The REIT was only generating cash income of 4.2%, but it was paying out 6.5% in dividends. This is not sustainable long-term. Shareholders equity is being paid out as dividends to make up the difference. This will cause the share price of the REIT to erode over time. Not a good thing.

    Always look under the hood before you buy an investment or a used car. If you dont know what youre looking for call a mechanic or an investment professional.

    Important Disclosure Information

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    Other Reit Class Actions

    In addition to the Apple REITs lawsuit, there have been a number of lawsuits alleging securities fraud by non-traded REITs. Examples of these lawsuits, some of which have already settled, include:

    W.P. Carey REITs LawsuitThis lawsuit was filed by the SEC alleging that W.P. Carey & Co. which, managed the W.P. Carey REITs, violated securities laws when it paid an undisclosed $10 million to a broker-dealer of the REITs. The case has settled.

    Inland Western REITs LawsuitThe Inland Western REITs lawsuit alleged that executives engaged in self-dealing by using shares of Inland Western REITs to purchase four advisory firms in which the executives supposedly had a financial interest. The case has settled.

    Ameriprise Financial Services LawsuitThe Ameriprise Financial Services Lawsuit alleged that the company received undisclosed payments to market REITs. As a result of this lawsuit, Ameriprise Financial settled with the SEC.

    Reit Risks: Why Not To Invest In Reits

    Non-traded Real Estate Investment Trusts: AVOID!

    Some of the biggest complaints associated with REITs include issues with unsuitability, illiquidity, high upfront fees, and uncertain valuations.

    • UnsuitabilityDue largely to a lack of liquidity, many REITs, especially non-traded REITs, are rarely suitable for short-term investors according to FINRA. Short-term investors who were sold on these investment products may have been misled.
    • IlliquidityNon-traded and private REITs are typically not easy to sell because they are not publicly traded on a major exchange. This puts investors at significant risk of losing their money should the REIT lose value.
    • Up-Front FeesAccording to FINRA, the fees associated with non-traded REITs are typically much higher than those associated with traded REITs, causing investors to lose up to 15 percent of their principal before it is even invested. Brokers may commit non-traded REIT fraud by failing to disclose accurate information about up-front fees.
    • Uncertain ValuationSince shares of private and non-traded REITs are not sold on any exchange, the value of a share can be hard to determine. Often sold as an answer to volatility, one SEC attorney noted in the New York Times that the SEC objects to the suggestion that they are eliminating volatility simply because they dont tell you what the value is, adding Its not that its not volatile. Its just that you dont know. This means that some investors may not even know that they are taking losses in their investment.

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    Are Reits Better Than Stocks

    Income. Both REITs and stocks can provide a steady stream of income for investors, but REITs focus more on that aspect than stocks do. However, some stocks do not pay dividends, while REITs have strict guidelines on dividends. At least 90 percent of a REITs taxable income must be distributed in dividends.

    Insurance Segregated Fund Trust

    This is a related segregated fund of a life insurer for life insurance policies and is considered to be an inter vivos trust. The fund’s property and income are considered to be the property and income of the trust, with the life insurer as the trustee.


    You have to file a separate T3 return and financial statements for each fund. If all the beneficiaries are fully registered plans, complete only the identification and certification areas of the T3 return and enclose the financial statements. If the beneficiaries are both registered and non-registered plans, report and allocate only the income that applies to the non-registered plans.

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    Are Reits Good During A Recession

    While no recession is identical to the last, there are certain sectors of real estate that are more resilient during a recession. REITs can be a much more cost-effective and attainable way for investors to get started in real estate while gaining access to institutional-quality investments in a diversified portfolio.

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    The Perils of Non

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    Understanding Real Estate Finance: The Advantages And Disadvantages Of A Non

    by Tom Voekler | Jul 21, 2021 | REITs

    Recently, a global investment manager with $1.3 trillion in assets under management, established a non-traded real estate investment trust to raise billions of dollars in capital to purchase commercial real estate in the United States and to hold real estate-oriented securities.

    It was just the latest mega-fundraising or sales event involving non-traded REITs in 2021. According to The DI Wire, non-traded REITs reached nearly $2.64 billion in sales in April alone, an all-time monthly record and the second consecutive month that fundraising had topped $2 billion. Robert A. Stanger & Co., an investment bank that tracks the market, revised upward its sales estimate for non-traded REITs in 2021 from $20 billion to $25 billion.

    Amid this frenzy of activity, investors may be attracted to a non-traded REIT because they offer tax advantages, a steady cash flow, and the potential for capital appreciation. But they also come with a higher risk profile than their publicly traded counterparts.


    Two types of public REITs are available. One trades on a national securities exchange the othera non-traded REITdoes not.

    Like publicly traded REITs, non-traded REITs:


    Unlike REITs traded on the exchanges, non-traded REITs:


    Nevertheless, the investments can be complex and do carry risks. FINRA has created a list of issues investors should consider. Among them:

    Registered Disability Savings Plan Trust

    An RDSP trust has to complete and file a T3 return if the trust has borrowed money and subparagraph 146.4 or 146.4 of the Act applies. If this does not apply and the trust carried on a business or held non-qualified investments during the tax year, you have to complete a T3 return to calculate the taxable income from the business or non-qualified investments, determined under subsection 146.4. If the trust is reporting capital gains or losses, it has to report the full amount on line 1 of the T3 return.

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    Cim Real Estate Finance Trust Inc Announces Completion Of Merger With Cim Income Nav Inc

    PHOENIX, December 16, 2021—-CIM Real Estate Finance Trust, Inc. announced today it has acquired CIM Income NAV, Inc. in a stock-for-stock, tax-free merger transaction pursuant to the definitive agreement executed in September 2021. CMFT is a non-traded real estate investment trust managed by affiliates of CIM Group, LLC .

    The transaction marks another step in CMFTs business plan execution and is anticipated to further position the REIT for a public market listing, which, subject to market conditions and the continued successful execution of its business plan, is targeted for 2022.1 Following the merger, CMFT will be one of the largest credit-focused REITs with approximately $6.1 billion in enterprise value and in excess of $3.1 billion in equity value.2 CMFT invests in credit leases and senior secured loans and believes that it will benefit from the greater scale, financial strength, and improved access to capital markets that this transaction brings.

    “We believe the merger will result in significant benefits for stockholders, and in particular, the increased scale should make the company more attractive to investors as it prepares for a public market listing,” said Richard Ressler, Principal and Co-Founder of CIM Group.

    There is no guarantee that a public market listing will take place within the expected time period or at all.

    Based on CMFTs and INAVs respective shares outstanding and related debt as of September 30, 2021.

    About CIM Group


    Updating Disclosure And Readability

    Ray Lucia Ask Ray – Are Non-Traded REITS Still a Good Investment Vehicle?

    The continuous nature of non-traded REIT offerings creates an obligation under the Securities Act for non-traded REITs to update their prospectuses on a frequent basis. Item 20.D of Guide 5 facilitates the updating process by permitting registrants to file supplements to describe property acquisitions that become probable and to consolidate all such supplements into a post-effective amendment at least once every three months. Non-traded REITs frequently update other information in the prospectus using supplements.

    When a non-traded REIT accompanies the base prospectus with numerous supplements, investors may be required to refer to multiple documents in order to understand the complete disclosure on a particular topic, such as the current property portfolio, the material risks of the offering or the plan of distribution. We believe this is inconsistent with the principles in Securities Act Rule 421, and we often ask registrants to consolidate their supplements quarterly into one or two supplements to enhance readability of the disclosure. We also frequently request that non-traded REITs update the base prospectus annually to include information from the prospectus supplements.

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    Hepatitis C Trust And Indian Residential School Trust

    These are inter vivos trusts under paragraph 81 of the Act and are government funded trusts.

    • established under:
    • the 1986-1990 Hepatitis C Settlement Agreement
    • the Pre-1986/Post-1990 Hepatitis C Settlement Agreement
    • the Indian Residential Schools Settlement Agreement entered into by her Majesty in right of Canada on May 8, 2006
  • as long as no contribution to the trust, other than contributions provided for under the Agreement, is made before the end of a tax year of the trust, the trusts income is generally exempt from income tax for that tax year.
  • Non Traded Real Estate Investment Trusts

    Non Traded Real Estate Investment Trusts REIT’s

    Non-traded Real Estate Investment Trusts are public companies, but their shares are not listed on any stock exchange. This makes non-traded REITs a very private market with less liquidity but also less volatility than there public counterparts.. When investigating non traded Real Estate Investment Trusts investors need to be careful that the non traded REIT are not paying dividends from borrowings and capital as opposed to funds from operations like they should be.

    Non-traded public REITs are proving to be a popular new source of investment capital for the commercial real estate industry. Created more than 30 years after the REIT Act of 1960, non-traded REITs were born out of the limited partnership industry. Shares in these firms are marketed to individual investors via financial intermediaries, including registered broker/dealers and financial advisers. It is estimated that that the total assets under management for all non-traded REITs represented 20-25% % of the total market capitalization for all publicly registered REITs. This is up from just 3% 10 years ago so clearly this is a rapidly growing market.

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