How Nontraded REITs Work and Where They Fit in Portfolios

After a challenging period for commercial real estate and higher interest rates, nontraded REITs are showing signs of renewed momentum. Industry assets have grown significantly over the past several years, and investor flows have turned positive after a stretch of outflows. Yet many investors still struggle to understand how these vehicles work, how they're valued, and where they fit within a diversified portfolio.

In our 2026 Nontraded REIT Landscape, we examine industry growth, valuation methods, liquidity considerations, leverage, fees, and the role these investments may play in client portfolios.

Real estate investing spans a spectrum from direct ownership to full market liquidity, and REITs come in different forms along that spectrum.

A nontraded REIT, or unlisted REIT, is a real estate investment trust whose shares don't trade on a public exchange. Instead of buying and selling shares in the open market, investors typically purchase and redeem shares through the REIT itself at a price based on the value of its underlying assets.

Most nontraded REITs are equity REITs, which own and operate income-producing property such as apartments, warehouses, data centers, medical offices, or properties under long-term net leases.

Key characteristics typically include:

• Monthly or quarterly NAV pricing
• Lower and simpler fee structures than older-generation nontraded REITs
• Perpetual, continuously offered structures
• Regular share-repurchase program

As of June 30, 2026, Blackstone Real Estate Income Trust, or BREIT, held $56.6 billion in net assets, nearly half of the industry total of around $115 billion and more than 5 times the size of its next-largest competitor. Blue Owl Real Estate Net Lease was the second-largest nontraded REIT at $9.4 billion.

Total assets for nontraded REITs reached $115 billion as of June 30, 2026. That was up from $34 billion at the end of 2020 despite a period of outflows. Much of the growth stemmed from new vehicle launches, as well as steady—if small—returns.

The total number of nontraded REITs as of June 30, 2026, was 45—a fourth of which were more than a decade old. Seven vehicles were launched in 2024, an active year by recent standards. The new-launch trend slowed to three in 2025, and none have launched so far in 2026.

The case for sustained, resurgent investor demand in the asset class is murky. Still, REITs are enjoying a moment of positive momentum, such as:

• Outflows flipped to inflows in the third quarter of 2025, and inflows continued for the next three quarters.
• The median nontraded REIT’s annual return has been in positive territory the past three calendar years, including 2026 through June.

At the same time, the asset class continues to face meaningful challenges:

• Higher interest rates continue to increase borrowing costs.
• Some portfolios are still working through the effects of the 2022–23 rate shock.
• Vehicle launches have slowed following a strong 2024.

One of the biggest differences between listed and nontraded REITs is how investors determine what they're worth.

A listed REIT's price is set by the market in real time as buyers and sellers agree on a number in real time. A nontraded REIT’s value is estimated rather than set by daily trading in the stock market. Managers typically use appraisals, financial models, outside valuation firms, and recent property transactions to estimate what the portfolio is worth.

Valuation methodologies vary by manager. Some firms rely heavily on independent third-party appraisers, while others combine internal valuation models with external reviews and validation. Most nontraded REITs calculate NAV monthly.

Because nontraded REITs are valued through periodic appraisals rather than continuous market trading, their reported returns tend to look smoother over time. That doesn't necessarily mean the underlying real estate is less risky.

Instead, property value changes are reflected gradually as appraisals are updated rather than immediately through market pricing. As a result, reported returns often show less short-term volatility than publicly traded REITs.

The effect isn't a red flag or a sign of manipulation; it's a well-understood characteristic of any appraisal-priced asset class, but it needs to be factored into how the numbers are interpreted.

Liquidity in a nontraded REIT is a scheduled process, not a real-time transaction. Investors submit repurchase requests during an open window, typically monthly or quarterly, rather than being able to sell at any moment the way they would with a listed security.  Investors can usually request to sell shares back to the REIT on a monthly or quarterly schedule, generally at or near NAV. But these programs have limits, and during periods of heavy demand, investors may receive only part of what they requested or may have to wait longer for liquidity. 

Most programs also include limits on the total amount of shares that can be redeemed during a given period. When redemption requests exceed those limits, the REIT may reduce payments through a process known as proration. 

Vehicles handle excess demand differently. Some operate on a first-come, first served basis. Others shift to a per-stockholder allocation once certain limits are reached, giving each investor an equal proportional right to redeem based on their holdings rather than favoring whoever submitted first or in the largest size.

Nontraded REITs generally pay distributions on a regular schedule, most commonly monthly or quarterly. 

Unlike public-company dividends, distributions are not automatically tied to earnings during a specific period. Distribution rates are established by the REIT's board and can be received in cash or reinvested through a distribution reinvestment plan, or DRIP, which purchases additional shares at NAV.

A distribution isn't always the same thing as investment income. Distributions from a nontraded REIT are typically classified, for tax purposes, into categories: ordinary income, capital gains, and return of capital.

Return of capital is mainly a tax classification. It does not necessarily mean the REIT is simply giving investors their own money back. Real estate depreciation can reduce taxable income even when properties are still generating healthy cash flow.

The distribution rate tells investors how much they are being paid. Distribution coverage helps show whether the REIT is generating enough recurring cash flow to support that payout.

Like many real estate investment vehicles, nontraded REITs use borrowed capital to help fund acquisitions and portfolio growth.

Leverage can enhance returns when property values rise, but it also increases risk when conditions deteriorate. The impact of leverage can become particularly important when combined with appraisal-based valuations.

Because property values are updated periodically rather than continuously, declines in underlying real estate values may not appear immediately in NAV calculations. When appraisals eventually catch up to market conditions, the resulting adjustment can be more pronounced in highly leveraged portfolios.

In other words, leverage doesn't just magnify gains and losses. It can also amplify how dramatically changing property values show up in reported NAV.

Nontraded REITs typically headline a single cost number, but that figure describes only one layer of the total cost borne by shareholders. Understanding each layer matters more than looking at any single number in isolation:

• Management fees: Paid to the firm managing the REIT.
• Distribution and servicing fees: Costs tied to selling and servicing certain share classes.
• Performance fees: Extra compensation some managers earn when returns exceed certain targets.
• Other expenses: Operating costs, transaction costs, and interest expense from borrowing.

The headline fee percentage rarely tells the whole story. The main point is that the advertised management fee is only part of the total cost. Investors should look at all of the expenses that can reduce returns.

Nontraded REITs are generally best viewed as a long-term private real estate allocation, not as a higher-yielding substitute for bonds or a liquid alternative to listed REITs.

Potential benefits include:

• Access to institutionally managed private real estate
• Diversification beyond publicly traded stocks and bonds
• Exposure to a broader real assets allocation through an evergreen structure

At the same time, investors should be comfortable with:

• Limited liquidity
• Appraisal-based pricing
• Additional fees
• Long holding periods

For many investors, the question isn't whether they want real estate exposure. It's whether the structure, liquidity profile, and risks of a nontraded REIT align with their broader portfolio objectives and time horizon.