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Nontraded REIT fundraising slows to a crawl

Tom Yeatts is a reporter with S&P Global Market Intelligence. Theviews and opinions expressed in thispiece are those of the author and do not necessarily represent the views of S&PGlobal Market Intelligence.

NontradedREIT fundraising slowed to a crawl in the first half of 2016, the latest quarterlydata from Robert A. Stanger & Co. Inc. showed.

Totalcapital raised through June 30 — $2.47 billion — was less than half the $5.75 billionraised in the first half of 2015.

Kevin Gannon, a managingdirector at Robert A. Stanger, attributed the falloff in sales in large partto new regulatory initiatives, including FINRA Regulatory Notice 15-02 aimed atboosting fee transparency, which took effect in April. The push by the North American Securities Administrators Associationfor a potential new cap on illiquid alternative investment products in individualretirement accounts and American RealtyCapital's departurefrom the space have also taken some wind out of the industry's sails.

In aninterview, Gannon described the nontraded REIT industry as in a period of transition.Slowly, the market is gravitating to a host of new products friendlier to the newregulatory environment, including so-called T shares, which have an annual trailingcommission, and daily NAV REITs. Gannon said the market for the new products mayalso be "poaching" some nontraded REIT sales.

Still, Gannon said he had not anticipated that nontraded REITsales figures for the first half would be so low. "We knew it would be downbecause of the regulatory changes," he said. "I didn't expect it to bedown this far."

Robert A. Stanger recently revised its nontraded REIT sales projectionfor 2016 to around $5 billion, from a range of $6 billion to $7 billion. Gannonsaid he is optimistic about the industry's future, however.

"We think it will come back up," he said of the salestotals. "And [sponsors] will continue to raise money because it's fundamentallya viable product. We've seen good results in nontraded REITs over the last coupleof years — some pretty good performance numbers, pretty good capital appreciation,and dividends."

A differentroster of players dominated the top-sponsor list in the first half of 2016 thanhad in the prior-year period. DividendCapital Securities LLC was the most active sponsor in the first half,raising $343.0 million, representing 13.9% of the market. The firmhad been in the top spot at the end of the firstquarter.

came in second place on the first-half sponsor ranking, raising $286.5 million,representing an 11.6% market share.

,the nontraded REIT sponsor owned by VEREITInc., rounded out the top three with an 11.5% market share, after raising$283.0 million.

,Jones Lang LaSalle Income Property Trust Inc.and Carey Watermark Investors 2 Inc. were the topnontraded REIT programs in the first half. They raised $294.1 million, $286.5 millionand $223.3 million, respectively, during the period.