Bought a non-traded REIT to stop watching prices, and that part actually worked

The line of credit is the real hero of this post and I don't think you're giving it enough credit. Without it you'd be writing a different thread.

This is close to what I want. Income, no second job, no app checking.

Question on the Class I part. You said no upfront selling commission. What made you eligible for that class? Every time I look at these the good class has a minimum I can't hit or requires an advisor relationship I don't have.

marlow, that varies by sponsor and by platform. Some open the institutional class to direct investors at a higher minimum, some only through registered advisors, some through the crowdfunding platforms at low minimums. The share class table in the prospectus lists eligibility for each one and it's worth reading all four rows even if you think you know which one applies to you.

cobalt, how long did it take you to actually stop checking? That's my honest worry. I think I'd just find something else to watch.

On the share class question, the mechanism is worth being precise about because it drives the return difference more than most people expect.

Public non-traded REITs typically register several classes of the same underlying shares. They hold identical assets and receive the same gross distributions. What differs is the fee load: an upfront selling commission and dealer manager fee taken at purchase, and an ongoing stockholder servicing fee charged as an annual percentage of NAV. Classes with no upfront load usually carry either a higher ongoing servicing fee or an eligibility restriction, commonly a higher minimum or purchase through a registered investment advisor. Eligibility terms are set by the sponsor and the distributing platform, so confirm the current terms in writing with whoever is taking your subscription.

The arithmetic that matters over a hold. A 3% upfront load is a one-time drag that amortizes across the holding period, roughly 60 basis points a year over five years and 30 over ten. A 0.85% annual servicing fee is a constant drag that does not amortize. Crossover is usually somewhere around three to four years, meaning the load-bearing class can be cheaper for short holds and the fee-bearing class cheaper for long ones. Since the vehicle is illiquid by design and most holders are in for years, the comparison generally favors the low-ongoing-fee class where you qualify for it.

Cobalt's assumption that the answer holds is that the distribution rate and NAV path are the same across classes, which they are on a gross basis. The per-class net differs entirely by fee. Two years of data on any single vehicle does not distinguish a well-run portfolio from a favorable window in the underlying sectors.

The three-chunk entry over four months is the piece I'd copy. Not because it times anything, it doesn't. It just gives you two or three NAV prints and a distribution to look at while you still have most of your money uncommitted, and if the sponsor does something strange in that window you find out for 10k instead of 30k.

6% office. That's the number that made this work and I want to say it out loud because the last thread about a loss in here was 41% office.

cobalt, did you have a threshold in mind or did you just look at it and feel okay?

quill, I'd guess feel. I don't have a threshold either and I've been asking myself what mine would be since I read verity's post.

The harder question is that sector labels move. A suburban office building converted to lab space is still filed how? And medical office sits in a different bucket at different sponsors. The percentage only means something if you know how they're counting.

thicket is on the thing that matters. The schedule of investments gives you property names, locations, sector labels, and carrying values. The sector label is the sponsor's own classification and there's no standard governing it across sponsors.

What I do instead is read the top twenty holdings by NAV and decide myself what each one is. On a diversified fund that's usually 55 to 70% of the portfolio and it takes an hour. Twice now I've found that the fact sheet pie chart and my own count disagreed by more than five points on a single sector.

cobalt, the other thing in your favor that you didn't mention: two years in a vehicle whose NAV moves under 1.1% a month means you have almost no information about how it behaves under stress. The insulation from daily volatility is real, the insulation from the underlying real estate is not. Your 3.4% cumulative NAV gain is an appraisal outcome, and appraisals lag.

Going to ask the dumb one. If the NAV only moves 1% a month and appraisals lag, is the low volatility actually real or is it just the price not being updated?

I think I know the answer is somewhere in between but I want someone to say it plainly.

compass, both descriptions are true of the same fact. The properties genuinely don't change value 14% in a week, a public REIT share does that because sentiment moves faster than buildings do. And the NAV genuinely is a lagging estimate rather than a clearing price, so a real decline shows up in your statement months after it shows up in the market.

Which one you call it depends on whether you're going to sell during the lag.

beacon put it better than I would have.

The underwriting version: a NAV is a modeled number built from appraisals on a rolling cycle plus the sponsor's cap rate assumptions between appraisals. If cap rates in the transaction market move 50 basis points in a quarter, a public REIT reprices that afternoon and the non-traded NAV picks it up over the next several months as properties come up for appraisal. There's nothing improper about it, it's how appraisal works. It does mean the smoothness you're paying for is partly a measurement artifact.

cobalt, 4.9 to 5.3 with distributions covered from operating cash flow is a reasonable outcome for the period. Do you know the coverage ratio? That's the number I'd want before calling two years a win.

Following this thread mostly to work out whether the vehicle fits me at all, and the answer is drifting toward no, for a reason nobody's said directly.

I'd want to be able to move the money if I found a deal. cobalt specifically wanted the opposite. That's the whole fit question and it has nothing to do with fees or sector mix.

kestrel has it. I renovate. Every dollar I have needs to be reachable in about eleven days because that's how long a good contractor stays available.

Good post though cobalt. The transmission story is the part I'd tell people.

What's a hurdle? cobalt mentioned a performance fee above a hurdle and I don't know what that means.

rigging, a hurdle is a minimum return the fund has to deliver before the sponsor earns the performance fee. Say the hurdle is 5% annual total return. If the fund returns 4%, no performance fee. If it returns 8%, the sponsor takes a stated share of the amount above 5%.

The details are where it lives. Whether the hurdle is annual or cumulative, whether there's a high water mark so past losses have to be earned back before fees resume, and whether total return is measured off the NAV that the sponsor's own process produces. That last one is the part I'd read three times. The fee is computed off a number the manager influences, and the disclosure will name the independent valuation advisor and describe the review, so read what the advisor's role actually is rather than assuming it's an audit.

warrant, the high water mark thing. If there isn't one, does that mean the NAV drops 10% one year, recovers 10% the next, and the sponsor gets paid on the recovery?

That can't be right, that's getting paid twice for going nowhere.

vellum, it can be right, and that's exactly why the loss carryforward language matters. Some structures have a full high water mark, some have a loss carryforward that expires after a set period, some reset annually with nothing carried forward at all. Three different answers to your question and all three exist in the market.

It's in the advisory agreement summary in the prospectus, usually a couple of paragraphs under the performance participation heading. Read the whole thing including the example calculation the sponsor provides, and then work the example yourself with a down year inserted. Most of the printed examples only show an up year.

Reading canton's post and thinking about how many people in these things have never read that section. Probably most.

cobalt, no criticism, you clearly read yours.

What I'm taking from the whole thread is that the private and non-traded label covers a wide spread of quality and the paperwork is the only place the difference shows up. There's no price signal to warn you, because there's no price.

That's a bigger deal than I understood a week ago.

Numbers on cobalt's two years, because I want to know what we're actually praising.

30k in. Distributions call it 5.1% average, reinvested, so roughly 3.1k accumulated over two years including the compounding. NAV up 3.4%, about 1.0k on the original principal plus a bit on the reinvested shares. Total roughly 4.3k on 30k over 24 months, call it 7.0% annualized total return.

That's a fine outcome and it's also within the range a public REIT index could have done over a lot of two year windows, sometimes better and sometimes much worse. What cobalt bought is the narrowing of that range, not the level of it. Worth being clear that the fee structure is the price of the narrowing.

sextant's coverage question is still the open one for me too.

ledger, that's the cleanest framing in the thread. You're paying for a smaller distribution of outcomes.

Which is worth something real if your income is already volatile, and worth nothing if it isn't. cobalt's income is a service business, so it's worth something to him. Mine isn't structured that way.

Came in knowing nothing about these and I'm leaving with a list of four things to read in the document, which is more than I expected.

The transmission part is what stays with me. I've had that month.