Nontraded REITs Looking for Multifamily Portfolio Deals

May 9, 2022 | James Sprow | Blue Vault

Nontraded real estate investment trusts’ share in U.S. private apartment deals rose to 10% in 2021, according to Real Capital Analytics. This compares to an average of 3% between 2015 and 2019.

The increase follows record fundraising between January 2021 and November 2021. The $32.8 billion raised was over three times larger than in 2020, Real Capital Analytics reported, citing investment bank Robert A. Stanger’s data.

An increase in nontraded REIT megadeals involving apartment portfolios, and even entire companies, could materialize in 2022 as investors find ways to expedite capital deployment.

Multifamily assets have become increasingly attractive as a hedge against inflation. Apartment rents can be adjusted over one-year intervals for most apartments, unlike the rental contracts of other asset types such as industrial/distribution warehouses and net lease properties. Typical lease rate escalation clauses were not written with 8.5% annual inflation rates in mind.  Many have a 2% escalator with a CPI-based clause capped at 3%. 

The other compelling arguments for multifamily investments are the shortages of single family homes that have led to double-digit increases in selling prices, exacerbated by rising mortgage rates that will make it more and more difficult for those in apartments who were wanting to purchase a home.

Blackstone Real Estate Income Trust (“BREIT”), by far the largest nontraded REIT with over $91 billion in assets as of December 31, 2021, had 51% of its real estate portfolio in residential assets as of March 31, 2022. On February 16, 2022, BREIT entered into an agreement to acquire Preferred Apartment Communities (NYSE: APTS) (“PAC”), a listed REIT, for approximately $5.8 billion. PAC’s core portfolio includes 44 high-quality multifamily communities totaling approximately 12,000 units concentrated largely in Atlanta, Orlando, Tampa, Jacksonville, Charlotte and Nashville and 54 grocery-anchored retail assets comprising approximately 6M square feet, located predominantly in in Atlanta, Orlando, Nashville and Raleigh.

Sources:  S&P Global Market Intelligence, SEC, Blackstone REIT website