Guide to Private REITs

Private REITs are real estate funds or companies that are exempt from SEC registration and whose shares do not trade on national stock exchanges. Private REITs generally can be sold only to institutional investors.

Private REITs are not traded on a national stock exchange or registered with the SEC. As a result, private REITs are not subject to the same disclosure requirements as stock exchange-listed or public non-listed REITs.

Private REITs issue shares that are neither traded on national exchanges nor registered with the SEC, but rather issued pursuant to one or more of several exemptions to the securities laws set forth in regulations promulgated and enforced by the SEC. These exemptions include rules set forth under Regulation D, permitting an issuer to sell securities to "accredited investors," and Rule 144A, which exempts securities issued to qualified institutional buyers (QIBs).

Private REITs, sometimes called private placement REITs, are offerings that are exempt from SEC registration under Regulation D of the Securities Act of 1933 and whose shares intentionally do not trade on a national securities exchange. Private REITs generally can be sold only to institutional investors, such as large pension funds, and/or to “Accredited Investors” generally defined as individuals with a net worth of at least $1 million (excluding primary residence) or with income exceeding $200,000 over two prior two years ($300,000 with a spouse).

Shares are not traded on a public securities exchange and are not generally liquid. Redemption programs for shares vary by company and may be limited, non-existent, and/or subject to change. 

Transaction Costs
Brokerage costs vary by company, but may include formation fees, annual management fees and a percentage of profits in the form of a “promoted interest.”

Typically externally advised and managed.

Minimum Investment Amount
Typically $1,000 - $25,000; private REITs that are designed for institutional or accredited investors generally require a much higher minimum investment.

Independent Directors
Generally exempt from regulatory requirements and oversight, unless managed by a registered investment advisor under the Investment Advisers Act of 1940.

Investor Control
Investors generally re-elect directors. 

Corporate Governance
Not required other than the Internal Revenue Code’s requirement that a REIT needs to have a board of directors or board of trustees.

Disclosure Obligation
Exempt from SEC registration and related disclosure requirements under Regulation D. 

Performance Measurement
No public or independent source of performance data available for tracking private REITs. 

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