5.5% distribution plus 1% NAV growth equals 6.5%, which I think is a lie

Building a comparison sheet and I want somebody to break it.

Non-traded NAV REIT, quoted distribution rate 5.5% on NAV, sponsor's own materials suggest low single digit NAV appreciation over a long horizon. Call it 1%. That gets you 6.5% before I've touched anything.

Against that, a public REIT index fund at roughly 0.12% expense with a dividend yield in the mid 3s and the rest of the return coming from price, which over long periods has been in the high single digits total, with drawdowns that have hit 40% and taken years to recover.

Where I think my 6.5% is wrong:

The distribution is quoted on NAV, and if I buy a load-bearing share class I've already given up 3% before the first dollar of it reaches me. On 100k that's a 3k hole that a 5.5% distribution takes about seven months to fill.
Part of that 5.5% is return of capital, which means some of what I'm counting as yield is my own money coming back with the basis reduced. That is not the same thing as a dividend and I've been treating it as the same thing in column D.
The 1% NAV growth is net of fees already, or it isn't, and the materials don't say clearly.

What I can't decide is whether the volatility difference is worth anything in a spreadsheet at all. A 40% drawdown I don't sell into costs me nothing in the end. Unless it costs me the thing I would have bought with the money.

Tell me what else is wrong with the sheet.

Answer

1jessreyes12AU1APRO8

Number 3 is the one I'd chase first, because if the 1% is gross of fees your whole comparison flips sign. Ask them for a net-of-all-fees total return since inception per share class and refuse the blended number.

On the drawdown question, I'd argue it isn't free even if you never sell. In 2025 public REITs traded at big discounts to what their buildings appraised for. If you'd wanted to sell one thing to buy another during that window you'd have been transacting at the discount, and that's a real cost that never shows up in a buy-and-hold chart. The non-traded version doesn't hand you that discount, and it also doesn't let you buy at somebody else's discount.

2 replies

2gregpowell66AG4BPRO8

Coming from the build side, the thing missing from your sheet is what the underlying stuff actually is. A 6.5% projection off a portfolio that's mostly newer industrial and data centers is a different bet from 6.5% off older office, and both can be described with the same two numbers on a fact sheet.

Also your 3k hole math is optimistic. It takes seven months of distributions to equal 3k, but those distributions were going to arrive anyway, so the load didn't get filled, it got permanently subtracted. You're 3k of principal down forever and compounding on a smaller base.