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Inland American Real Estate Trust: Buyer Beware

Inland American Real Estate Trust is among several unlisted real estate investment trusts (REITs) to face a wave of backlash from investors lately. Why? Because many independent broker/dealers and their financial advisers misrepresented the risks and characteristics of unlisted REITs like the Inland American Real Estate Trust. Only now are many retail investors coming to terms with the collateral damage that has taken place in their portfolios.

To be sure, sales of unlisted (also known as non-traded) REITs are booming. Unlisted REITs raised more than $10 billion in 2008.

Sold through broker/dealers, shares in unlisted REITs do not trade on national stock exchanges. Redemptions are limited and usually include a minimum holding period. If an investor does decide to get out of the trust entirely, he or she can usually only do so on a specified date.

There are several other caveats associated with unlisted REITs, not the least of which is an exorbitant fee of up to 15% to get in. And that’s in addition to ongoing management fees and other expenses. Even more important: Unlisted REITs often offer no independent source of performance data. They also fail to offer investors a guarantee that their dividend payments will continue throughout their planned investment period in the REIT. 

Non-Traded REITs: Considerations for Hotel Investors by John B. Corgel and Scott Gibson provides an in-depth look at unlisted REITs and the unintended consequences that the products may create for individual investors who do not conduct their own due diligence.

Specifically, the study – which claims to be the first professional and academic report to analyze the structure of non-traded REITs – shows that investors who purchased hospitality REITs early in the investment cycle saw a diminished return as a result of subsequent sales. In other words, the early investors subsidize the commissions paid to the dealers who sell to late-term investors, the report says. 

One of the criticisms cited in the report – and one which has been touted in general by critics of unlisted REITs – is the vague prospectus language regarding exit strategies.

The fixed share prices of non-traded REITs are another bone of contention with naysayers of the products. Often marketed to investors as a selling point, the fixed share price can actually become an unwanted feature. Says Non-Traded REITs: Considerations for Hotel Investors

“ . . . this policy of maintaining fixed share prices in companies that continually offer shares at the same or similar fixed prices throughout the investment cycle will have adverse consequences to investors who buy into programs early in the cycle.” 

To their detriment, investors throughout the country may have purchased shares in non-traded REITs like the Inland American Real Estate Trust based on misrepresentations by their brokerage firm. That advice has now proven to financially disastrous. Instead of access to their cash, investors are finding themselves left out in the cold – their money locked up for an undetermined period of time in these illiquid, high-commission products. 

Maddox Hargett & Caruso continues to investigate the selling practices of brokerage firms such as UBS, Merrill Lynch, Citigroup, LPL Linsco, Morgan Keegan & Company, as well as others that may have recommended unsuitable investments in non-traded REITs to their clients. If you have a story to tell about your investment losses in non-traded REITs, contact us. 


7 thoughts on “Inland American Real Estate Trust: Buyer Beware”

  1. Judy Says:

    My daughter bought 1000 shares of Inland American through Ameriprise several years ago. I doubt she was ever warned of the high risk and her financial person at Ameriprise just keeps advising to hold onto the shares.Given her financial situation then and now, I think Ameriprise is doing her a grave disservice. She cannot redeem her shares now. However, s She has received an offer of $3/share from CMG Partners in Seattle. Do you know anything about them?

  2. Jim Says:

    I also received the offer from CMG LLC, look them up on the internet – they are pretty questionable (Google- CMG complaints). It seems they make most of their money on short term payday type loans at extremely high interest. It looks like CMG is trying to make another scam. I was also concerned and looked for recent press on Inland to see how healthy they are, they recently purchased several properties worth several million – this does not sound like a company that is in dire straights. CMG is feeding on the frenzy from nonpublicly traded REITS, granted it is a questionable practice but I would rather take the risk and hold them then blow away a >$7,000 loss. When the economy reverses (hopefully) these properties purchased for discounts will be worth much more.

  3. Mary Says:

    Several years ago, I put $50,000 in Inland American through an advisor at Ameriprise. I was recently divorced, financially struggling, and made it VERY clear to the Ameriprise person that I was a “risk adverse” investor. Filled out the forms. You know the drill. Nonetheless, he sold me this REIT…and in my naieve vulnerable state at the time…I trusted him, and bought it. Now, it is a completely illiquid investment and I wish, wish, wish there were some way to get at least my initial principal back. Let alone, the “missed opportunity” I would have had for that 50K over the past 5 years…if it had been invested more wisely. Boo on Ameriprise. I get the offers all the time from CMG and others. Not doing that yet. Won’t take pennies on the dollar for my investment. I think Ameriprise needs to step up to the plate and take care of the folks who were duped to buying into this highly commissionable, risky, investment. All I know…it wasn’t right for me.

  4. Dororthy Says:

    We are in the same situation, only with Hines REIT. Did you know Ameriprise was fined $17.3 million by the SEC for not disclosing incentives it received in the sale of REITs. Apparently they are the only ones to make money on these bad investments. They made $30 million in incentives and were fined $17.3 million so still came out ahead.

  5. Marie Says:

    I also invested $10K in this REIT several years ago at the advice of my financial advisor at Ameriprise. Just received a letter that the only way the shares can be repurchased is if I die, then my beneficiaries pay a 10% per share penalty when they are repurchased by Inland. Seems something must be illegal about not having access to my own money. I certainly wasn’t advised of the risks involved in this investment(???) vehicle. Shame on you Inland. Don’t be surprised if you get hit with a class action suit. We want our money back!

  6. vicki Says:


  7. mabel Says:

    My ex-money manager at Pacific Rim put 70k into inland america without telling me the illiquidity,or the high fees that are not apparent from the reams & reams ………. of paper they send. He gave me the impression it was a great investment. I can’t seem to be able to dump this,and do not even know what the actual value of the account is or how to liquidate it.

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