Public vs Private REITs
Public vs Private REITs
REITs trade in two markets: public exchanges and private platforms. A public REIT is traded on stock exchanges like the NYSE or NASDAQ. Shares are liquid, priced in real time, and subject to SEC disclosure rules. A private REIT is not exchange-listed. Its shares are sold directly to investors by the REIT or through brokers, with limited liquidity and no public pricing. The choice between public and private REITs involves trading off liquidity, transparency, fees, and return volatility.
Key takeaways
- Public REITs are traded on stock exchanges, offer instant liquidity, and have transparent pricing and SEC disclosures.
- Private REITs are illiquid, marketed directly to investors, and charge high fees but may insulate investors from market volatility.
- Public REIT prices fluctuate daily based on sentiment and market conditions, often trading at discounts to underlying property values.
- Private REITs report returns periodically and lack a secondary market, making them suitable only for long-term investors who can lock up capital.
- Public REITs are suitable for most investors; private REITs are a niche product for high-net-worth individuals seeking diversification away from public markets.
Public REITs: Transparency and liquidity
A public REIT is registered with the SEC and trades on a stock exchange. VNQ (Vanguard REIT ETF) holds hundreds of public REITs. Individual public REITs like Realty Income (O), Prologis (PLD), Equinix (EQIX), and American Tower (AMT) are household names. Public REITs must comply with SEC rules, including quarterly earnings reports, annual 10-K filings, and regular disclosures of their property portfolios, capital structure, and management changes. Investors can review audited financial statements and understand exactly what they own.
Public REIT shares are instantly liquid. You can sell during market hours for the current market price. This liquidity is powerful for investors who need flexibility or who want to rebalance their portfolio. If you own 100 shares of PLD and want to move that capital to DRE (another industrial REIT) for tactical reasons, you can sell and buy in minutes. The liquidity also means you can build and adjust positions of any size, from one share to millions of dollars.
Private REITs: Higher fees, less transparency
Private REITs are sold through brokerage platforms or directly by the sponsor. They are not exchange-listed and not SEC-registered in the traditional sense. Some private REITs are registered under Regulation A+ (a simplified SEC registration) or Regulation D (limited to accredited investors), but they still have limited disclosure compared to public REITs. Private REITs typically charge higher fees: a combination of upfront sales loads (as much as 10%), annual management fees (1% to 2%), and performance fees. These fees are substantial compared to public REIT ETFs, which charge 0.10% to 0.20% annually.
In exchange for these fees and illiquidity, private REITs often promise insulation from public market volatility. Because shares are not traded on exchanges, there is no daily repricing. A private REIT might report that your shares are worth $23 today based on its estimated net asset value (NAV), and if the NAV stays unchanged, you do not see your investment go up or down even if the stock market crashes. This appeals to investors who are bothered by volatility or who want to avoid timing mistakes.
However, this apparent stability is misleading. The underlying property values are subject to the same market forces as public REITs. If office vacancy rises, both public and private office REITs are harmed. The private REIT simply does not reprice its NAV to reflect these changes as frequently. When a private REIT does mark down its NAV—which can happen suddenly if property values fall sharply—investors have little recourse. Because shares are illiquid, you cannot quickly sell at the old price. The repricing is compulsory.
Valuation: Public REITs often trade at discounts
Public REIT share prices are set by supply and demand in the market. On any given day, if more people are selling than buying, the price falls. This creates an interesting dynamic: public REITs often trade at discounts (or occasionally premiums) to their estimated net asset value (NAV). If a REIT owns properties with a total estimated value of $50 per share but its stock trades at $45, it trades at a 10% discount. These discounts and premiums are driven by sentiment, liquidity, sector trends, and market conditions—not by changes in the underlying property values.
A savvy investor can exploit these discounts. In 2008–2009, public REITs traded at massive discounts as the real estate market seized up. A REIT with an estimated NAV of $40 traded at $20. If you had capital to deploy and a long time horizon, buying at the 50% discount could generate exceptional returns as the market recovered. By contrast, private REITs are less efficient markets. If a public REIT is available at a 10% discount, why would you pay the high fees to own a private REIT at NAV? The private REIT market survives partly because of limited liquidity in public markets (they appeal to institutional investors with large positions they cannot trade easily) and partly because of the perceived volatility-dampening effect, which many investors overvalue.
Redemptions and liquidity windows
Private REITs sometimes offer periodic redemption windows—times when shareholders can sell shares back to the REIT at the current NAV. A private REIT might allow redemptions once per quarter, once per year, or at irregular intervals. This provides some exit option, but it is inferior to public market liquidity. If you need cash urgently and the next redemption window is six months away, you are stuck. Additionally, during market stress, private REITs sometimes suspend redemptions—locking investors in completely. This happened to some private REITs during the 2008 financial crisis and during market panics in 2020.
Fee comparison
A public REIT ETF like VNQ charges 0.12% per year. Over 20 years on a $100,000 investment, total fees are roughly $2,400 (compounded). A private REIT charging a 10% upfront load, 1.5% annual fee, and generating 8% per year would cost significantly more. The 10% upfront load is $10,000 immediately. The annual 1.5% on $90,000 (after the load) is $1,350 per year, growing with the account. Over 20 years, total fees exceed $50,000. Even if the private REIT's actual property performance is identical to a public REIT, the fees create a drag that is very difficult to overcome.
Market timing and behavioral psychology
Private REITs appeal to investors who fear making market-timing mistakes. The lack of daily pricing and volatility visibility can provide psychological comfort. But this comfort is often illusory. Market panics affect all real estate equally. When the stock market crashes, real estate values typically fall as well. A private REIT that maintains "steady" NAV statements during a crisis is not protecting you—it is simply delaying the recognition of losses. When the repricing eventually comes, it can be sudden and dramatic.
Public market liquidity, while volatile, actually disciplines investors. Seeing a 20% decline in a REIT share price forces you to confront your risk tolerance and think deeply about your position. Are the underlying properties still sound? Have market conditions changed? This uncomfortable reckoning often leads to better decisions than comfortable quarterly NAV statements that mask deteriorating fundamentals.
Decision tree: Public or private REIT?
Next
The choice between public and private REITs often settles in favor of public for most investors—they offer superior liquidity, transparency, and fees. But whether you choose public or private, the real decision is property type. An apartment REIT, an industrial REIT, and a healthcare REIT each have different fundamentals, return drivers, and valuations. The next article breaks down the major property types and explains what makes each one unique.