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Private REITs and Crowdfunding

Interval Funds vs Non-Traded REITs

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Interval Funds vs Non-Traded REITs

Interval funds and non-traded REITs are both private real estate vehicles, but they differ in structure, liquidity, and regulatory oversight. Interval funds offer quarterly redemptions as a contractual obligation; non-traded REITs may feature longer lock-up periods and fewer redemption guarantees.

Key takeaways​

  • Interval funds are registered with the SEC and must offer quarterly redemptions at NAV; non-traded REITs often operate with minimal SEC oversight and may not offer redemptions
  • Interval funds have stricter valuation rules (annual appraisals, SEC oversight); non-traded REITs may use less frequent appraisals
  • Interval funds carry lower redemption-gating risk due to regulatory mandates; non-traded REITs can gate redemptions more aggressively
  • Both operate under Regulation D Rule 506c for accredited investors, but interval funds add an extra layer of SEC registration requirements
  • Expected returns are similar (5–8% for core funds, 8–12% for value-add), but the redemption mechanics differ materially

What is an interval fund?​

An interval fund is a mutual fund registered with the SEC under the Investment Company Act of 1940 but with restricted liquidity. Unlike a traditional open-end mutual fund (which allows daily redemptions like VNQ or SCHH), an interval fund permits redemptions only during specified intervals—typically quarterly.

The defining characteristics:

  • SEC registration: The fund files a Form N-2 prospectus with the SEC, similar to a closed-end fund or limited-edition mutual fund
  • Quarterly redemption obligation: The fund must offer redemptions at NAV at least quarterly, typically for a 30-60 day window
  • Redemption limits: The fund can redeem up to 5% of NAV per quarter (required minimum); beyond 5%, the fund may gate additional redemptions
  • Annual appraisals: Properties must be independently appraised at least annually and revalued quarterly based on market changes
  • Quarterly reporting: Financial statements are filed with the SEC and disclosed to investors

Examples of interval funds: Merritt Properties Interval Real Estate Fund, Gladstone Real Estate Investment Trust, various Registered Interval Funds (RIFs) managing real estate or other alternatives.

What is a non-traded REIT?​

A non-traded REIT is a real estate investment trust that does not trade on public exchanges, typically operating under Regulation D Rule 506c (limited to accredited investors) and not registered with the SEC as an interval fund.

Key characteristics:

  • Minimal SEC registration: The REIT is often a limited partnership or REIT entity that files Form D post-hoc but has no ongoing SEC filing obligations
  • Variable redemption structure: Redemptions may be quarterly, annual, or completely absent during a lock-up period (e.g., 7-10 years)
  • Self-determined valuations: Appraisals are conducted by independent appraisers but on a schedule determined by management, not mandated by law
  • No quarterly SEC reporting: Performance and holdings are disclosed to investors but not filed with the SEC
  • Sponsor-friendly terms: The REIT documents are drafted by sponsor counsel and reviewed by investors, not by SEC staff

Examples of non-traded REITs: Many regional and national non-traded REIT offerings sold through financial advisors; some older Fundrise offerings before Fundrise shifted to interval fund structures.

Regulatory differences and investor protections​

The regulatory framework for interval funds is more protective:

Interval funds:

  • SEC registration requires a prospectus filed with SEC staff
  • SEC staff reviews the prospectus and can request revisions to risk disclosure and financial presentation
  • Annual and quarterly financial statements are filed with the SEC and subject to auditor certification
  • Fund managers have fiduciary duties to investors and are subject to SEC examination
  • Valuation rules are mandated by the SEC (e.g., annual independent appraisals)
  • Redemption gating is limited (maximum 5% per quarter must be honored at NAV; above 5% can be gated)

Non-traded REITs:

  • Form D filing is post-hoc and minimal; no SEC staff review of offering documents
  • Financial statements are audited but not filed with SEC; audit standards are chosen by the sponsor
  • Managers have contractual duties to investors but not statutory fiduciary duties in the same sense
  • Valuation is determined by management with independent appraisal guidance but no SEC mandate on frequency
  • Redemption gating can be aggressive; the offering documents may reserve unlimited gating rights in case of "illiquidity events"

In the 2008 financial crisis and again during the 2020 pandemic, non-traded REITs gated or suspended redemptions aggressively, while interval funds (being subject to SEC mandates) were more constrained in their gating. This created a material divergence in investor outcomes.

Liquidity and redemption terms​

Interval funds:

  • Quarterly redemptions at NAV are mandatory (unless gated for extraordinary circumstances)
  • Redemption windows typically last 30–60 days
  • Maximum 5% NAV must be redeemed at published NAV per quarter; above 5% can be pro-rata gated
  • Illiquidity reserves (1–2% of redemption proceeds) are common but typically disclosed upfront
  • Secondary markets are minimal; redemptions are the primary exit

Non-traded REITs:

  • Redemption schedules vary widely; some offer quarterly windows, others annual, others none until a specified exit date
  • Lock-up periods of 5–10 years are common, especially for REITs sold through financial advisors
  • Gating can be triggered by management discretion (e.g., "if outflows exceed 10% of NAV"); no regulatory cap
  • Illiquidity reserves may be higher (2–5%) or not disclosed explicitly
  • Secondary markets are limited or absent

Practical implications:

An investor in an interval fund can expect quarterly exit opportunities, though with possible pro-rata gating if demand is high. An investor in a traditional non-traded REIT may face a 7-10 year lock-up with minimal redemption rights.

Valuation and appraisal practices​

Interval funds:

  • Annual independent appraisals are required by the fund's prospectus and SEC rules
  • Properties are re-valued quarterly using recent appraisals, market data, and operating metrics
  • Appraisers are certified and subject to professional standards (APPRAISAL Institute, Appraisal Foundation)
  • Valuation methodologies are disclosed to investors

Non-traded REITs:

  • Appraisals are conducted by independent firms but on a schedule determined by management
  • Many older non-traded REITs conduct appraisals every 2–3 years, not annually
  • Valuation methodologies are less standardized and disclosed less prominently
  • During the COVID-19 pandemic, some non-traded REITs did not appraise properties for extended periods, keeping NAV outdated

The difference matters. An interval fund's more frequent appraisal schedule means the published NAV is closer to current market reality. A non-traded REIT's less frequent appraisals can result in significant divergence between published NAV and true economic value.

Fee structures​

Interval funds:

  • Annual management fee: 0.75–1.25%
  • Performance fees: Sometimes included (10–20% of profits above hurdle rate)
  • Redemption reserves: 1–2% of redemption proceeds
  • Transparent fee disclosure in the prospectus

Non-traded REITs:

  • Annual management fee: 0.75–1.50%
  • Asset-based incentive fee: Often 0.5–1% of AUM (additional to management fee)
  • Performance fees: 15–25% of net profits (higher than interval funds)
  • Illiquidity reserves: 2–5% (higher than interval funds)
  • Upfront sales charges: Historically, some non-traded REITs sold through advisors charged 7–8% upfront; modern offerings have reduced this

Overall, non-traded REITs often have higher fees than interval funds, especially when upfront sales charges and illiquidity reserves are considered.

Historical performance and stress tests​

During the 2008 financial crisis:

  • Interval funds (being SEC-registered) faced pressure to gate but were constrained by regulatory mandates. Some REITs honored redemptions at NAV even as property values collapsed, creating a subsidy to early redeemers.
  • Non-traded REITs gated aggressively, suspending redemptions entirely for months or years. Investors were trapped at outdated NAV while property values continued to decline.

During the 2020 pandemic:

  • Interval funds temporarily gated some redemptions but resumed full redemption honors within weeks.
  • Some non-traded REITs again gated redemptions during the initial market shock, though most resumed within months.

The regulatory constraint on interval funds—the requirement to redeem at least some NAV each quarter—acts as a stabilizer. Even in stress scenarios, investors have a periodic exit opportunity. Non-traded REITs lack this constraint and can gate indefinitely if management deems it necessary.

Which structure is right for you?​

Choose an interval fund if:

  • You want quarterly liquidity and are uncomfortable with extended lock-ups
  • You value SEC oversight and prefer regulated structures
  • You want transparent, frequent appraisals and SEC-filed financial statements
  • You prioritize lower fees and redemption guarantees

Choose a non-traded REIT if:

  • You have a long-term horizon (7-10 years) and do not anticipate needing redemptions
  • You are comfortable with management discretion on redemption gating
  • You're seeking exposure to a specific REIT strategy offered outside the interval fund universe
  • You are willing to accept less frequent appraisals for potentially lower fees

For most retail investors, interval funds are the safer choice. They offer regulatory oversight and redemption guarantees that non-traded REITs do not. However, if you are committed to a multi-decade holding period and trust the REIT's management, a non-traded REIT may offer similar returns with less regulatory overhead.

Structural comparison flowchart​

Next​

You now understand the full landscape of private real estate offerings: the platforms (Fundrise, Yieldstreet, RealtyMogul, Arrived), the regulatory structures (Regulation A, Regulation D), and the financial vehicles (interval funds, non-traded REITs, individual syndications). The final decision is how to allocate across these options, balancing liquidity, fees, diversification, and expected returns within your overall portfolio. The chapter that follows explores this allocation question and how to construct a multi-asset real estate strategy.