Are Private REIT’s As Safe As Public REIT’s
If you’ve spent any time in real estate investing circles lately, you’ve probably noticed a shift.
More and more deals are being packaged, branded, and sold through private REITs. They’re positioned as exclusive. Stable. Sometimes even “low risk.”
And on the surface, they can sound incredibly compelling.
But here’s the uncomfortable truth most people don’t talk about enough:
Not all REITs are created equal. And the gap between public and private REITs is wider than most investors realize.
Let’s break this down in a way that actually matters if you’re putting real money on the line.
Public vs. Private REITs: What’s the Real Difference?
At a high level, both structures allow investors to pool capital and invest in income-producing real estate.
But how they operate and more importantly, how you experience them as an investor is completely different.
Public REITs (The Transparent Machine)
Public REITs are traded on stock exchanges like the Toronto Stock Exchange.
Think of names like RioCan REIT or Canadian Apartment Properties REIT.
These are institutional-grade portfolios with thousands of units, professional management teams, and strict regulatory oversight.
What makes them attractive:
- Liquidity: You can buy and sell instantly, just like a stock
- Transparency: Quarterly financials, audited statements, public disclosures
- Pricing clarity: The market determines value in real time
- Regulation: Governed by securities laws in Canada
The trade-off:
- You don’t get control
- Returns are tied to market sentiment (not just property performance)
- Volatility can mess with your head even when fundamentals are strong
But overall, public REITs are clean, visible, and difficult to manipulate.
Private REITs (The Black Box)
Private REITs are not listed on public exchanges.
They’re typically offered through:
- Investment groups
- Exempt market dealers
- Real estate operators raising capital
You’ll often hear phrases like:
- “Off-market opportunity”
- “Exclusive deal”
- “Consistent monthly cash flow”
- “Low volatility”
And this is where things get… nuanced.
What makes them appealing:
- Access to deals you couldn’t buy alone
- Potential for higher returns (on paper)
- Less visible volatility (you don’t see daily price swings)
- Tax-efficient structures (sometimes)
But here’s the part most investors underestimate:
Private REITs are only as strong as the operator behind them.
Why Private REITs Carry More Risk (And It’s Not Even Close)
Let’s call this what it is.
Private REITs introduce layers of risk that simply don’t exist in public markets.
1. Lack of Liquidity (You’re Locked In)
With a public REIT, you can exit in seconds.
With a private REIT?
You’re often locked in for 3–7 years… sometimes longer.
Redemption options, if they exist, are:
- Limited
- Subject to approval
- Often paused during downturns
And guess what happens when markets shift?
Liquidity disappears exactly when you want it most.
2. Valuations Can Be… Flexible
Public REITs are priced by the market every second.
Private REITs?
They’re valued internally.
That means:
- Appraisals may be infrequent
- Assumptions can be optimistic
- Performance may look smoother than reality
You might see “stable returns” not because the asset is stable, but because pricing isn’t being stress-tested daily.
3. Fees That Quietly Eat Your Returns
This is the silent killer.
Private REITs often layer in:
- Acquisition fees
- Asset management fees
- Disposition fees
- Promote structures
By the time profits reach investors, a meaningful chunk has already been extracted.
And unless you’ve gone line-by-line through the offering memorandum, you probably won’t see the full picture.
4. Operator Risk (The Biggest One)
This is where things either work… or completely fall apart.
In a private REIT:
- The operator controls acquisitions
- The operator controls financing
- The operator controls reporting
- The operator controls distributions
If they’re disciplined, experienced, and aligned with investors, you can do very well.
If they’re not?
You may not realize there’s a problem until it’s too late.
We’ve seen this play out in Canada through:
- Overleveraged portfolios
- Poor underwriting
- Capital being recycled just to maintain distributions
And when those cracks show, investors are often the last to know.
5. Regulatory Differences (Less Oversight)
Public REITs operate under strict continuous disclosure rules.
Private REITs fall under the exempt market, which means:
- Less frequent reporting
- Less standardization
- Greater reliance on trust
That doesn’t mean they’re bad.
But it does mean you have to do more of the heavy lifting as an investor.
So… Should You Avoid Private REITs?
Not necessarily.
But you need to approach them completely differently.
Public REITs are investments.
Private REITs are partnerships.
And partnerships require a deeper level of diligence.
What Every Investor Should Know Before Investing
If you’re evaluating a REIT, especially a private one, here’s the filter I’d use.
1. Follow the Debt
- What’s the loan-to-value (LTV)?
- Is the debt fixed or variable?
- When does it mature?
In today’s “higher for longer” rate environment, this matters more than ever.
2. Understand the Exit Strategy
- How do you actually get your money back?
- Is there a defined liquidity event?
- Or are you relying on future refinancing or resale assumptions?
3. Look Beyond the Projected Returns
Projected IRRs are marketing.
Instead, ask:
- What assumptions are driving these numbers?
- What happens if rents don’t increase?
- What happens if cap rates expand?
4. Audit the Operator (Like You’re Hiring Them)
This is non-negotiable.
Look at:
- Track record across full market cycles
- How they performed in downturns
- Past investor communications
And honestly?
Call other investors if you can.
5. Read the Fine Print (Yes, Actually)
Specifically:
- Fee structures
- Preferred return vs. actual payout structure
- Waterfalls
- Risk disclosures
This is where the truth lives.
The Bottom Line
Public REITs give you:
- Liquidity
- Transparency
- Market-driven pricing
Private REITs offer:
- Access
- Potential upside
- Operator-driven execution
But they also introduce:
- Illiquidity
- opacity
- and a level of trust that many investors underestimate
If you’re going to play in the private space, you need to think less like a passive investor…
…and more like a capital partner underwriting a business.
Because that’s exactly what you are.
A Thought Worth Sitting With
Sometimes the most dangerous investments aren’t the ones that look risky.
They’re the ones that look safe… but aren’t tested in real time.
And in a market like we’re in right now such as shifting rates, tighter financing, and increasing pressure on operators, that distinction matters more than ever.
If you’re exploring private real estate opportunities or considering investing in a REIT structure, take your time.
Ask better questions.
And don’t confuse polished presentations with real risk management.
Let’s build wealth the smart way, together!
And, if you’re thinking about buying, selling or investing in Durham Region or Toronto, let’s chat! I can be reached at 647-896.6584, by email at info@serenaholmesrealtor.com or by filling out this simple contact form.
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