“Private REITs” and “Public Non-Traded REITs” are oftentimes confused with one-another, as both types of products are structured as open-ended vehicles, and neither type of product is listed or traded on public stock exchanges. There are key differences, though, in the way that these types of offerings are sold to investors, how they are valued, and the commissions & fees that can be involved in a purchase.
Broadstone Net Lease is a “Private REIT.” Private REITs are not SEC-registered entities, but are required to conform with the SEC’s rule 506, regulation D. The offerings are available only to investors that meet one or more of the SEC’s “Accredited Investor” thresholds, and are sold directly via private placement. Investors’ shares are valued on a quarterly basis via a “Net Asset Value” calculation, which is outlined in detail in the FAQ. While private REITs are, by law, allowed to charge front-loaded commissions on investments, Broadstone Net Lease does not charge a commission to invest, and does not pay any broker-dealer commissions on sales of BNL shares. The REIT has, instead, built in a one-time capital-raising fee of 0.5%, which helps cover the cost of the offering, including legal and marketing expenses. This means that 99.5% of every dollar invested in Broadstone Net Lease goes directly towards purchasing income producing real estate.
“Non-Traded REITs” are SEC-registered offerings, and are required to conform with the Securities Acts of 1933 and 1934. These offerings are most frequently marketed and sold by a “broker/dealer” or “dealer manager,” which may not be the same entity as the REIT itself, but may be “affiliated,” and ultimately controlled by the same management team. These “broker/dealers” often charge investors front-loaded commissions as high as 10% of the purchase value, and, according to a 2012 report from the Securities Litigation and Consulting group, Inc., the all-in commissions for “organization and offering expenses” can sometimes reach as high as 15%.