As real estate recovers, non-listed REITs are soaring. But they haven't been much of a hit with customers of Merrill Lynch.

Merrill Lynch announced its entry into the space late last year, becoming the first wirehouse to offer non-listed REITs in recent years. And while these equity deals raised nearly $10 billion in the first seven months of 2013, up more than 85% from the year-earlier period, according to the Investment Program Association and Robert A. Stanger & Co., Merrill's activity has lagged, says Keith Allaire, a managing director at Stanger, which provides information and research on direct investments.

Merrill's reps began selling a non-listed REIT from Jones Lang LaSalle, an investment management company specializing in real estate, but fund raising has been disappointing, Allaire says. Other major firms haven't followed Merrill into non-listed REITs. (A spokesperson for Merrill parent Bank of America declined to comment.)

Non-listed REITs often are structured to deliver substantial current cash flow. Allaire put the typical payout of current offerings at around 6% a year. Non-listed REITs usually are aimed at a broad investor market, with investment minimums of $10,000, he says.

Allaire advanced some possible reasons for Merrill's slow start in this area, including unfamiliar paperwork and what previous press reports have characterized as a less lucrative commission structure. Moreover, wirehouses and regional broker-dealers may be shying away from non-listed REITs because of institutional memories going back to the partnership era of the 1980s, according to Allaire.

Major firms did a substantial amount of business in directly-owned, non-traded investment real estate at that time, typically structured as limited partnerships. Many of these deals did not end well for clients, so wirehouses and regional broker-dealers may still be wary of this type of offering. In addition, dividend cuts resulting from the 2008-2009 financial crisis and negative press coverage may have limited these firms' willingness to offer non-listed REITs to their clients.

Non-listed REITs aren't traded, but future regulatory changes from FINRA could lead to offerings of such entities with daily liquidity, Allaire says. That could create more enthusiasm for these REITs at major firms.

With so little help from wirehouses and regional broker-dealers, why have non-listed REITs attracted so many investor dollars in 2013? Allaire points to "liquidity events" (listings and liquidations) in 2012 and 2013. "They have had mixed results, but some of the larger offerings have done really well," he says.

Allaire mentions an offering from American Realty Capital, the industry's leading fundraiser in 2013, with nearly $4.3 billion in seven months. "This non-listed REIT raised capital in mid-2011 and liquidated in February 2013," he says. "Investors not only had their 6% annual returns, they also had gains of over 30% in less than two years." After seeing such examples of ample yield plus large profits, investors have sent sales of non-listed REITs through the roof.