REIT Lawyer Optimistic for Future of PNLRs

Rosemarie Thurston, partner at Alston & Bird, participated in a video interview at REITwise 2018, Nareit’s Law, Accounting & Finance Conference in Hollywood, Florida.

Although fund-raising in the public non-listed REIT (PNLR) space tapered off to $4 billion last year, the lowest amount since 2002, Thurston remains optimistic about the outlook for PNLRs. She attributes the decline in fund-raising to two regulatory changes.

One federal rule called for more transparency about the load that investors in these securities are paying, as well as the value of the stock. The Department of Labor rule relating to fiduciary duty for broker-dealers has also had an impact, according to Thurston.

“It’s already caused financial advisors to treat their clients differently. And then the compliance departments of the broker-dealers are not allowing these high commission-based products,” Thurston said. She pointed to Blackstone’s success “right out of the gate” in raising $2 billion last year in the space, as a cause for optimism.

Thurston sees the next generation of PNLRs as more perpetual life products. This means investors can stay invested in these products for as long as they desire and also enjoy liquidity.

“The legacy products were kind of like the roach motel. You could get in but not necessarily get out,” Thurston noted. She sees an upcoming explosion in this space, considering capital-raising interest from other institutional management firms following Blackstone’s success. She also sees interest from newer distribution partners – such as Merrill Lynch, Morgan Stanley and UBS – in participating in this space, whereas historically only smaller broker-dealers typically took up this work.