Fundraising for Direct Investments Reaches Record-Breaking $25B in 2013

Investors couldn't get enough of non-listed REITs--and non-listed business development companies and other direct participation programs--in 2013, according to research released by The Investment Program Association and Robert A. Stanger & Co. Fundraising for these direct investments surpassed $25 billion last year.
Investment Program Association Kevin Hogan president and CEO

Kevin Hogan, of IPA

Investors couldn’t get enough of non-listed REITs–and non-listed business development companies and other direct participation programs–in 2013, according to research released by The Investment Program Association and Robert A. Stanger & Co. Fundraising for these direct investments surpassed $24.5 billion last year.

Simply put, Kevin Hogan, president & CEO of IPA, told Commercial Property Executive, “These products meet investors’ needs for income and non-correlated assets.”

Equity capital flows to Direct Investments jumped a whopping 84 percent from 2012 to 2013. The numbers are hard to ignore. Last year, public non-listed REITs garnered roughly 80 percent of total capital raised by Direct Investments, and investment in BDC’s, now the second largest sector of the public Direct Investment marketplace, reached an all-time high of $4.8 billion, marking an head-turning increase from 2012’s $2.8 billion.

The massive fundraising achievements can be attributed to a few factors, one of which is the liquidations of previously formed non-listed REITs, which have brought investors desirable total returns. IPA and Stanger also point to the appeal of continuing yield advantage of real estate and private corporate development loans among investors–an appeal that is stronger than the attraction to more traditional fixed income investment options. The third factor that resulted in the high numbers is the ongoing uncertainty of the effect of macro-economic influences on the stock market; the apprehension turns investors’ eyes toward portfolio diversification.

“We were gratified, but not surprised, by investors’ enthusiasm,” Hogan said. “In June, the industry had raised nearly 80 percent of its 2012 total. [Additionally,] earlier in the year, we surveyed high-net-worth investors and 45 percent said they would increase holdings in non-listed REITs.”

And the potent allure of Direct Investments is not likely to recede anytime soon. Investors’ strong need to be cautious in the face of doubt has a great deal to do with the forecast. “Considerable uncertainties remain which justify a prudent investment allocation to Direct Investments,” Kevin Gannon, managing director of Stanger, said in a prepared statement. “Those include the pace and sustainability of the U.S. economic recovery, the rate of the Fed’s downsizing of quantitative easing, potential revisions to the tax code, and the longer-term potential for inflation.”

There’s no questioning the success of the Direct Investment industry in 2013 and already, evidence exists that there will be more of the same in 2014. According to Stanger data, approximately $6.5 billion of non-listed REIT liquidations/listings have been announced, with expected closings during the first quarter of this year.