EP#107 Clay Grubb | Inside the World of Non-Traded REITs

Jay Parsons (0:02)

Welcome, welcome. It's episode number 107 of The Rent Roll, your podcast on all things, rental, housing, apartments, single-family rentals, billed to rent. And today, we're going to dive into a topic that has always been interesting to me, something I've always been curious about, non-traded REITs. Now, there are a bunch of REITs out there that we never really talk about because they're not traded on the public markets. There's no stock ticker, you just plug into your, you know, to a ticker somewhere like Google Finance. They don't do public earnings calls. So they kind of fly under the radar a bit or a lot, but they're still REITs. And so why would someone choose to operate a non-traded REIT instead of a publicly traded REIT, or instead of a traditional fund or a traditional syndication, et cetera? And why would an investor choose that over other options as well? And as always, let me just put this disclaimer out there. If you're not an investment advisor, talk to one. If you really want to know the pros and cons of investing in one or the other, I'm just interested in how these things work.

And so this is all for informational purposes only. We hear the big names like B. REIT from Blackstone, S. REIT from Starwood, among others. But we're going to talk today to the newest non-traded REIT, the founder of a smaller non-traded apartment REIT, Clay Grubb of Grubb Properties and the REITs they operate called Link Apartments REIT and Link Apartments Opportunity Zone REIT. And beyond the REITs that they just launched, what also really got me interested in talking to Clay is that he has something of a rare investment strategy. And by that, what I mean is he's the rare Sun Belt-based apartment operator. He's a multi-generation Carolinian, North Carolina guy. But a lot of those groups, they bet heavily in their backyard and certainly Grubb has done that. But Clay and Grubb Properties and Link, they are going to the places that Sun Belt guys typically love to hate.

They're building and operating, really betting heavily on places like New York City, Oakland, Berkeley, Los Angeles, and the District of Columbia. And they're doing that with the essential housing product that they call Link Apartments. And so why is a company based in Charlotte, betting big on cities like New York City and Berkeley? And I'll talk to Clay about that. And then also about the non-traded REIT structure and much more in today's interview. And we'll, of course, try to keep it simple, not going to get too much in the weeds. Obviously, the REIT structures can get a bit technical and we'll try to avoid all that. All right. So let's get to a big thank you to our headline sponsor, JPI, a Leading Apartment Developer with a state of purpose to transform building, enhance communities and improve lives. Check them out at jpi.com. JPI is doing some really exciting things with AI and technology related to apartment development and construction. All right. So we got off with the section that we like to call, Here's a Chart!

And I got just one table to show you today. Let's talk about non-traded REITs and it'll be an interesting one. But first, a big thank you to the sponsor of this segment, Northspire. Most development teams don't have a data problem, they have a timing problem. Something goes sideways on a project and by the time it reaches the forecast, your only options left are a change order or a contingency draw. Northspire is the development intelligence platform that closes that gap. Budgets, forecasts, draws, and vendor data connected in one place, so your team sees the exposure while there's still room to act. Built by a developer, for developers, norspire.com.

Here's a chart. Again, we got one table to show you today on our theme related to non-traded REITs. It's a list of 28 non-traded equity REITs tracked by Stanger Investment Banking. This list is from August and it does not include the inclusion of our newest REIT, Link Apartments REITs from Grubb that just launched, but otherwise appears to be a comprehensive list as far as I could tell.

Just one quick note, it's based on net asset value, not total asset value, and so it does include the impact of debt and the numbers you see on your screen. Who is the biggest non-traded REIT, according to Stanger's research? It's the one that everyone has heard of, BREIT, aka Blackstone Real Estate Investment Trust. Nearly $58 billion in net asset value, according to public filings compiled by Stanger. That's way ahead of number two, Blue Owl Real Estate Net Lease Trust, at $9.9 billion, and they're mostly commercial properties. I think maybe all commercial properties as far as I know. And then Starwood Real Estate Investment Trust, aka SREIT, with $7.9 billion in net asset value. Now, SREIT and BREIT, both big names in rental housing, of course, but they are diversified REITs that invest in other sectors as well. And then you may or may not be aware that there are a number of other big institutional names that operate private REITs. That list includes big names in rental housing like Aries, JLL, Heinz, NUVINE, Apollo, Clarion, KKR, JP Morgan, Cottonwood, Brookfield, Invesco, Fidelity, P-GEM and REIF. So how do these non-traded REITs work? Well, I am not an expert on that. I'm not going to pretend to be an expert on that. Again, talk to an investment advisor if you really want to know that part of it and whether it's right for you. But we'll get into some of that in today's conversation with Clay Grubb, who again has just launched the newest private REIT. But let me give you a quick and dirty version. So a non-traded REIT is what its name implies. It's not publicly traded. You can invest into them and maybe some different ways depending on the structure, and they do vary. But it's generally not the type of thing that you're going to log on to your brokerage website and buy and sell publicly and on a click of a button like you would with apartment and SFR REITs like Vivmark, MAA, SX, Canvan, UDR, Imitation, AMH, etc. Also, it's generally going to be limited to accredited investors and institutional investors. One big benefit of the private REIT structure is that your net asset value should theoretically be your actual value. Values are set based on appraisals, which should reflect actual values, meaning that your properties should be valued what they're actually worth in today's market. Now, some of you know we've talked about this a lot in the podcast when REIT earnings calls happen. For the public REITs, their values swing dramatically based on macro things that have nothing to do with their performance, nothing to do with the condition of the multifamily or SFR markets, just broader market noise, economic stuff, etc. That's been a point of frustration for public REIT executives who like to point out that their net asset values often far exceed their stock value, meaning they can trade all the properties they own and they can get more money than what their public stock prices imply.