Allan Swaringen, president and CEO of public non-listed REIT (PNLR) JLL Income Property Trust and chairman of Nareit’s PNLR Council, believes a whole new model of PNLRs—the 2.0 version—is emerging to better protect investors’ wealth and generate good income while providing valuable solutions for today’s retirement world.
When Swaringen looks out 10 years from now, he can see the eight or 10 PNLRs out there today, with a combined value of $25 billion, expanding to 30 to 40 companies with a value of $300 billion to $400 billion.
“The PNLR market, not having shares listed on the exchange and not having our shares traded daily, allows investors a smoother journey and yet still have that good, quality, durable income.” Swaringen added that listed REITs continue to offer far greater liquidity than PNLRs.
Swaringen describes the PNLR industry as having undergone some seismic changes over the last five years. JLL Income Property Trust, advised by LaSalle Investment Management, Inc., pioneered the daily-NAV/perpetual life REIT structure six-and-a-half years ago, and was one of the first programs to gain access through a wirehouse distribution platform through a partnership with Merrill Lynch. Swaringen says an array of new regulations led to these developments.
“It’s interesting, however, that our program met all of the requirements of FINRA 1502 about two years before it was implemented, so we brought an institutional-focused PNLR to the market,” he says.
By doing so, LaSalle created a product that was perpetual and valued daily, and that had not been done before. Historically, the PNLR market was principally dominated by offerings with a three-year program, an optional two-year extension, and then a liquidity event.
Another seismic shift is the influx of new participants entering the PNLR space.
Swaringen says many other large institutional firms including Blackstone, Starwood, Nuveen, and Oaktree have decided to offer products structured similarly within the last 12 to 24 months and are launching additional offerings targeting high-net-worth private capital.
“You’re seeing new managers come in who, like LaSalle, have a long and storied track record in managing real estate for some of the largest and most sophisticated investors in the world,” Swaringen says. “Now, the PNLR structure can be used to do the same quality of investing for the high-net-worth private clients and to some degree the small foundations, endowments, and family offices who historically have not had access to commercial real estate programs at this scale.”
Swaringen adds that the newer PNLR offerings are also providing broader portfolio diversity than previous offerings.
“Based upon our outlook for the broader economy and what’s going on in the real estate market, we have a view as to which property types will do better over the next three to seven years, and to some degree which properties may not do as well,” Swaringen says. “The same thing with geographic markets.”
Sean Meehan, portfolio manager for JLL Income Property Trust, says the company is targeting suburban multifamily, especially garden-style apartments in areas with solid school districts. “We also are bullish on the industrial sector, which over the last several years has been spectacular and we expect that to continue,” Meehan says.