Assessing the Investing Environment
Two of the factors an investment advisor should consider in assessing the investing environment for non-traded REITs are:
- The real estate market cycle
- Potential income and appreciation strategies
Real estate markets travel through recurring cycles over time, from recession to recovery, through expansion and contraction, and back to recession as the cycle begins again.
Successful real estate investment managers must be able to assess which phase the market is in and the pace at which it is likely to move to the next phase. Investors who purchase shares in a non-traded REIT are counting on the REIT’s management to make appropriate buy and sell decisions for the portfolio, based in part on their assessment of the real estate cycle.
What moves a real estate cycle from phase to phase is an interaction of demand for space from the economy and supply of space provided by real estate developers and owners.