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1st Global asks non-traded REIT companies to lower fees


Independent wealth management firm 1st Global is calling on non-traded REIT sponsors to lower the upfront commissions on non-traded REITs and other direct participation programmes.

“Industry sales have been falling steadily since 2014, but they just fell off a cliff in April of this year as the FINRA rule went into effect,” says Michael Pagano, 1st Global’s executive vice president of compliance, legal and risk assessment.
In April 2016, FINRA rules governing direct participation program statement valuations (explained in Regulatory Notice 15-02) came into effect. The FINRA rule was designed to make these sales charges transparent to investors, but before the new rules could take effect, many non-traded REIT sponsors created T shares as a mechanism to circumvent them. Class T shares spread out the sales charges over time instead of triggering them when the purchase is made.
“While a very small number of industry participants are taking baby steps to lower investor costs, the majority of the industry — non-traded REIT sponsors and some independent broker-dealers — just want to maintain status quo and are hopeful that everything will return to normal,” says Pagano. “This is not a realistic view of the future.”
1st Global believes in the investment thesis of non-traded REITs, which provide investors investment vehicles that get them as close to ownership of real estate as possible without actually having to own the real estate. The company, which has been working with certain industry participants to effect change, commends the recent moves by Hines and Inland to lower costs and believes these efforts are a big step toward bringing retail investing more in line with the institutional world.
“It’s time for the industry to stop talking about lowering costs and actually lower them,” says Pagano.

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