Morningstar, Call Me

Morningstar is getting into writing analysis on non-traded REITs.  Here is a link to an InvestmentNews article on the decision.  On the surface, it's hard to see how this is not good news.  I think Morningstar will have its work cut out for it, especially based on the tone of this quote from Philip J. Martin, the person Morningstar hired to direct its non-traded REIT efforts:

“Presently, Morningstar does not believe a significant investment in nonlisted REITs makes sense for most investors as there are still too many drawbacks and unresolved issues,” he wrote in the note.” “We believe listed REITs to be the most appropriate option, from the standpoint of both the alignment of shareholder interests and long-term risk/return potential.”


But the deficiencies can be remedied, Mr. Martin said. 

Let's not kid ourselves, the above comment is code for saying that non-traded REITs' fees are too high for representatives, broker / dealers and sponsors, and high fees limit non-traded REITs' chances for success.  I'd like to be the fly on the wall when Morningstar tells Nick Schorsch, Jeffery Hines, Leo Wells and all the other non-traded REIT executives that they make too much money, and oh-by-the-way they need to disclose how much they're paid by the REITs' external advisors.  And wait until Morningstar finds out how non-traded REITs spend their O&O money. 

One thing I don't expect from Morningstar research is a Z-Score predicting that the entire non-traded REIT industry is a bankruptcy risk, which was recently produced by one of what InvestmentNews called "hodgepodge" due diligence firms.  With (faulty) red herring analysis like that, Morningstar's presence is needed. 

Morningstar, you need to call me, I'll shorten your learning curve in this industry where each of these REITs are different.