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The Downside To Non-Traded REITS

A number of non-traded real estate investment trusts (REITs) have turned sour for investors in the past year. Among them: Behringer Harvard REIT, Desert Capital, Inland American, Cornerstone Growth & Income, Cole Credit Property, as well as others.

These and other non-traded REITs are considered public companies, but their shares are not listed on a stock exchange. This lack of transparency, along with inaccurate valuation estimates, excessive broker fees, complex redemption policies and illiquidity has come back to haunt many non-traded REIT investors. Cases in point: Behringer Harvard REIT, Inland American Real Estate Trust, Inland Western Retail Real Estate Trust and Desert Capital.

In May 2011, facing creditor claims of more $43 million, Desert Capital was forced into involuntary Chapter 11 bankruptcy. Similar cash-flow issues have plagued Inland Western. In 2009, Inland Western defaulted on several property loans, as well as pushed back maturity dates of others. As of May 2009, Inland Western subsidiaries defaulted on six mortgage loans – totaling $54.9 million – according to a quarterly report filed with the Securities and Exchange Commission (SEC).

As a result, Inland Western slashed its dividend by 70% in 2009. It also suspended its share-repurchase program, putting shareholders who wanted to sell their investment in limbo.

Investors in Behringer Harvard REIT I are in similar financial turmoil. This particular non-traded REIT has never generated profit for investors and is now completely illiquid.

Many investors in non-traded REITs thought they were buying a conservative, relatively low-risk investment. Their assumption was based on the recommendations and information they received from their brokers. Instead, many of these investors are facing suspended redemption policies and an illiquid investment.

If you’ve suffered investment losses in non-traded REITs, contact us to tell us your story.

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