A 5.5 percent distribution plus 1 percent NAV growth does not really add up to 6.5 percent

Here is a comparison sheet worth breaking. Non traded NAV REIT, quoted distribution rate 5.5 percent on NAV, sponsor's own materials suggesting low single digit NAV appreciation over a long horizon. Call it 1 percent. That gets you 6.5 percent before anyone has touched anything. Against that, a public REIT index fund at roughly 0.12 percent 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 percent and taken years to recover. Where the 6.5 percent goes wrong. First, the distribution is quoted on NAV, and a load bearing share class gives up 3 percent before the first dollar of it reaches the investor. On 100k that is a 3k hole that a 5.5 percent distribution takes about seven months to fill. Second, part of that 5.5 percent is return of capital, which means some of what is being counted as yield is the investor's own money coming back with the basis reduced. That is a different thing from a dividend, and most sheets treat it as the same thing in column D. Third, the 1 percent NAV growth is either net of fees already or it is not, and the materials do not say clearly. The harder question is whether the volatility difference is worth anything in a spreadsheet at all. A 40 percent drawdown an investor does not sell into costs nothing in the end. Unless it costs the thing they would have bought with the money. What else is wrong with the sheet?

hannah_west29 SS2APRO 16

Answer

jessreyes12ActivePRO

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.

jessreyes12ActivePRO

2 replies

gregpowell66 AC4BPRO 19

Coming from the build side, the thing missing from that sheet is what the underlying assets actually are. A 6.5 percent projection off a portfolio that is mostly newer industrial and data centers is a different bet from 6.5 percent off older office, and both can be described with the same two numbers on a fact sheet. Also the $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 did not get filled, it got permanently subtracted. That is $3k of principal down for good and compounding on a smaller base.

gregpowell66 AC4BPRO 19

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