What Is a Private REIT?

A private REIT is a real estate investment trust that does not trade on public exchanges. Instead, it prices at net asset value quarterly and offers redemption windows on a periodic schedule, creating illiquidity in exchange for lower volatility and direct access to institutional-quality properties.

Key takeaways

• Private REITs price quarterly at net asset value (NAV) rather than at market-driven prices like public REITs
• They are also called "non-traded REITs" and are accessed primarily through registered investment advisors or platforms
• Liquidity windows (redemption periods) typically occur quarterly or annually, not continuously
• The illiquidity premium—the difference between published NAV and actual exit proceeds—ranges from 2–7% depending on the fund and timing
• Private REITs often target institutional-grade properties (trophy office buildings, regional logistics, hospitality) with lower leverage and higher barriers to entry than public REITs

The public–private spectrum

The real estate investment world exists on a spectrum. At one extreme, you have exchange-listed REITs like Vanguard Real Estate ETF (VNQ), which trade continuously throughout the day at bid-ask spreads measured in basis points. At the other extreme, you have direct real estate ownership—purchasing a specific apartment building or shopping center outright. Private REITs occupy the middle ground: they are professionally managed, diversified across many properties, yet they avoid the volatility and market-driven pricing of public markets.

A private REIT is a legal structure (like a mutual fund or ETF) that owns and operates real estate on behalf of its investors. The key distinction is that shares in a private REIT do not trade on the New York Stock Exchange or NASDAQ. Instead, the fund itself determines the price of each share based on an independent appraisal of the underlying properties. This price is called the net asset value (NAV). In theory, NAV should reflect the true economic value of the real estate and cash held by the fund. In practice, there are costs and timing frictions that drive a wedge between what the stated NAV is and what you actually receive when you redeem.

How NAV pricing works

Unlike a stock, which might trade at $47.30 one moment and $47.45 the next, a private REIT's share price is fixed for an entire quarter. An independent valuation firm appraises each property in the fund's portfolio—usually annually—and updates the NAV calculation quarterly based on recent appraisals, capital expenditures, debt repayments, and distributable earnings.

The process typically unfolds like this. The REIT's manager assembles financial and operational data on all its properties. An appraisal firm performs detailed valuations, taking into account recent comparable sales, operating income, property condition, and market trends. The fund then publishes its NAV per share, which remains constant throughout the quarter. If you invest on January 2nd or March 30th, you pay the same price—the Q1 NAV.

This approach has advantages and drawbacks. The advantage is stability. Your NAV doesn't jiggle based on headline sentiment or algorithmic trading. The drawback is that valuations lag reality. A property might have deteriorated or appreciated significantly since the last appraisal, but the NAV won't update until the next appraisal cycle. For long-term investors who are not trying to time exits, this lag is a minor friction. For active traders, it is a meaningful drag.

Liquidity windows and redemption

Unlike a public REIT, where you can sell shares instantly during market hours, a private REIT constrains when you can cash out. Redemptions typically occur on a defined schedule—often quarterly or annually. Some funds offer windows lasting 30 or 60 days; others accept redemption requests for a single day per quarter.

When you redeem, you receive the NAV per share multiplied by your share count, minus any redemption fees or liquidity reserves. Here is where the illiquidity cost becomes concrete. Even though the stated NAV might be $14.80 per share, the fund might reserve 1–3% of redemption proceeds to cover near-term cash needs. Additionally, some funds charge explicit redemption fees. Over a 10-year holding period, these costs compound.

Private REITs target a redemption rate—often 5–10% per year. If more investors want to leave in a given quarter than the fund budgeted, the fund may "gate" redemptions, paying only the first $N million of requests at the published NAV and deferring the rest. The deferred investors might receive their cash in the next quarter, or the fund might pay a portion immediately and the remainder later. This gating protects remaining shareholders from forced asset sales at fire-sale prices, but it creates uncertainty for departing shareholders.

Structure: Interval funds and non-traded REITs

The term "private REIT" encompasses a few distinct structures, each with different SEC regulation and redemption mechanics. The two most common are interval funds (registered interval funds under the Investment Company Act of 1940) and non-traded REITs (Rule 506 offerings under Regulation D).

Interval funds are more heavily regulated. They file with the SEC, report holdings quarterly, and follow strict valuation rules. A fund like Merritt Properties Interval Real Estate Fund (which is an interval fund but not technically a REIT) must offer redemptions at least quarterly at NAV. By contrast, non-traded REITs are often Rule 506(c) offerings available only to accredited investors and face fewer SEC mandates on valuation transparency.

Both structures can label themselves "private REITS" in marketing material, though the term is sometimes reserved for non-traded vehicles specifically. The distinctions matter for transparency and investor protections, but from a portfolio perspective, the main point is the same: you get quarterly NAV pricing and periodic (not daily) liquidity.

Fees and the illiquidity premium

Private REITs charge management fees, typically 0.75–1.25% annually, plus a share of profit if the fund outperforms benchmarks (an "incentive fee"). These are higher than the 0.03% you'd pay for an S&P 500 index fund but often competitive with active mutual funds. For illiquidity and active property management, many investors feel these fees are justified.

The true cost of private REIT ownership lies in the illiquidity premium—the gap between the published NAV and the cash you actually receive. Studies of non-traded REITs and interval funds suggest this premium ranges from 2–7% depending on market conditions, fund flow, and redemption timing. In strong market environments when the fund has steady inflows, the premium might be only 1–2%. In stressed markets or periods of net outflows, it can exceed 5%.

What properties do private REITs own?

Private REITs typically own institutional-grade assets: trophy-quality office towers in major business districts, modern logistics parks, institutional-scale apartment complexes, and select hospitality properties. Because private REITs are smaller and more illiquid than public REITs, they cannot absorb losses from concentrated bets on troubled sub-sectors. They therefore focus on lower-leverage, higher-quality properties with stable, diversified tenant bases.

A private REIT might own 30–100 properties spread across multiple geographies and property types. A typical portfolio might include 25% office, 30% multifamily, 25% industrial, 15% hospitality, and 5% specialty or land. This diversification reduces idiosyncratic property risk but does not eliminate it. All real estate is affected by interest rate cycles, economic recessions, and structural shifts (like the post-pandemic office downturn).

When private REITs make sense in a portfolio

Private REITs are most suitable for investors with a multi-year time horizon, a tolerance for periodic illiquidity, and a belief that real estate is undervalued relative to public REITs or direct ownership. They appeal to accredited investors who want professional management without the public-market volatility of VNQ or Realty Income (O). They are less suitable for investors who may need cash within 12 months or who prefer instant liquidity.

Because private REITs hold institutional-quality real estate with lower leverage, they tend to exhibit lower volatility than public REIT indices. However, this stability comes at the cost of lower turnover and modest fee drag. Over a 20-year holding period, a private REIT might deliver 6–8% annualized returns, whereas a diversified portfolio of public REITs might deliver 7–10%. The private REIT offers more sleep-at-night returns; the public REIT offers higher long-term growth potential.

Valuation and accounting issues

One subtle but important issue: the NAV of a private REIT may understate or overstate the true value of the underlying properties due to appraisal lag. Properties are reappraised on a rolling basis—often every 1–3 years—not every quarter. If the real estate market has moved sharply since the last appraisal, the NAV can diverge from fair value. In rising markets, this means the NAV may be too conservative (the fund is worth more than the NAV suggests). In falling markets, the NAV may be too optimistic (the fund is worth less).

Independent appraisers have incentives to be accurate but also some leeway in valuation methods. An appraiser might use a discounted-cash-flow model, a comparable-sales approach, or an income-capitalization model—and each can yield different results. The fund's management has limited power to adjust appraisals, but they have strong incentive to keep NAV stable to avoid large redemption spikes. This can create a "smoothing" bias where appraisals change more slowly than economic reality warrants.

Over short holding periods (1–3 years), this appraisal lag is a material risk. Over longer periods (10+ years), it tends to average out as properties cycle through multiple appraisal rounds and economic conditions normalize.

Flowchart: Private REIT Lifecycle

Related concepts

• Accredited vs Non-Accredited Investors
• Regulation A vs Regulation D
• Interval Funds vs Non-Traded REITs

Next

Now that you understand the structure of a private REIT, the next question is whether you are eligible to invest. The SEC restricts access to many private REITs based on your income and net worth—a distinction known as "accredited investor" status. Understanding these thresholds and how they apply to your situation is essential before opening an account with any private REIT platform.