Reconciling a Class T share conversion cap measured against gross offering price versus a servicing fee accruing on NAV
Working through a public non-traded REIT prospectus, the share class mechanics on Class T don't reconcile cleanly at first read. Class T typically carries a 3.0 percent upfront selling commission plus a 0.5 percent dealer manager fee, then an ongoing stockholder servicing fee of 0.85 percent per year, with shares converting into Class I once the total of upfront plus servicing fees reaches 8.75 percent of the gross offering price of the share. The servicing fee accrues daily on NAV. The cap is stated against gross offering price at purchase. Those are two different bases, and the mismatch matters. If NAV rises meaningfully over the holding period, the 0.85 percent accrues on a larger number while the ceiling stays fixed at the original offering price, so conversion happens sooner than a naive read suggests. If NAV falls, the accrual slows and the fee clock stretches out, which is exactly the scenario where an investor would want it to stop rather than continue. Separately, a repurchase plan with a 2 percent early repurchase deduction inside the first year, amendable or suspendable by the board, adds another layer of uncertainty. The two questions worth getting answered directly from the sponsor or transfer agent: whether the fee accrues per share purchased so each tranche carries its own conversion date, and whether anything in the conversion mechanics resets if the plan is amended midstream. Neither is typically spelled out plainly in the prospectus itself.
