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Non-Traded REITs Plunge in Value

In the past seven years, some of the biggest non-traded real estate investment trusts (REITs) have lost $11.3 billion, or 37% of their equity value, according to an analysis of eight REITs by MTS Research Advisors for Investment News. The latest REIT to fall is CNL Lifestyle Properties, which initially raised $2.7 billion at $10 a share and then dropped in value to $7.31.

The Dividend Capital Total Realty Trust faced similar circumstances last month, when it revised its $10 per share price to $6.69 per share. In March, the REIT had stated that its value as $8.45 per share.

Many investors in non-traded REITs have seen their investments deteriorate over the past year. Robert Block, a 74-year-old retiree in Florida, invested more than $400,000 in several non-traded REITs from 2006 to 2008 on the advice of investment adviser who told him the investment’s dividends were attractive and the REITs were “about as safe as anything you could get.”

Block’s $400,000 investment was valued at about $300,000 based on REIT share valuations earlier this year.

“I needed income that I could count on and wasn’t risky,” said Block, who is seeking damages from his investment adviser in an arbitration case with the Financial Industry Regulatory Authority (FINRA).

Dividend cuts also have been an ongoing issue for non-traded REIT investors. In April, KBS Real Estate Investment Trust I told shareholders it was suspending its monthly dividend of 5.25%. It also marked down its share price by 30%, to $5.16.

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