Skip to main content


Representing Individual, High Net Worth & Institutional Investors

Office in Indiana


Home > Blog > Broker/Dealers Take Second Look at Non-Traded REITS

Broker/Dealers Take Second Look at Non-Traded REITS

Once the darling investment product of broker/dealers, some B-Ds are cutting back on the number of REIT products they intend to sell to investors. Their concerns have to do with several issues, including the risk levels of certain REITs, various expenses and how the REITs actually pay for their dividend.

Non-traded REITs have been in the news for some time now, with names like Behringer Harvard REIT, Apple REITs, Inland American Real Estate Trust and Desert Capital garnering top space in the headlines for the financial problems they’ve caused investors.

Non-traded REITs are considered public companies, whose shares are registered with the U.S. Securities & Exchange Commission, but they don’t trade publicly. In recent months, this lack of transparency has been thrust into the spotlight, along with problems tied to inaccurate valuation estimates, excessive broker fees, complex redemption policies, illiquidity and distribution issues.

In late May, the Financial Industry Regulatory Authority (FINRA) filed a complaint against David Lerner Associates related to distribution and valuation issues. In the complaint, FINRA questioned the value of various Apple properties, noting that investors were consistently told that their shares were worth $11 each when that was no longer the case. Some of the Apple REITs had to return investor capital – maintaining the perceived payout, but “eating the seed corn that normally grows those dividends,” according to a July 21 article by MarketWatch. That money, at the very least, should have been deducted from the share price, the MarketWatch article says.

In response, more broker/dealers are taking a new look at non-traded REITs. As reported Sept. 18 by Investment News, National Planning Holdings, a network of four broker/dealers with 3,663 affiliated reps and advisers, has reduced the number of non-traded REITs on its platform to 10 from 15 so far this year.

Other B-Ds like Next Financial Group are following a similar path. Next Financial, which maintains 923 affiliated reps and advisers, cut its number of non-traded REIT products to five from seven. Two years ago, the firm offered twice as many non-traded REITs for its reps to sell.

Comments are closed.

« Back to Blog

Top of Page