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The Behringer Harvard Strategic Opportunity Fund I Saga

It’s been a rocky road of financial trouble for several Behringer Havard non-traded real estate investment trusts (REITs). Behringer Harvard Strategic Opportunity Fund I now appears to be going the same way as the Behringer Harvard Short-Term Opportunity Fund I LLP and Behringer Harvard Strategic Opportunity Fund II – and that way is not good for investors of the products.

Behringer Harvard Strategic Opportunity Fund I is reportedly underwater, with its debts now outweighing its assets. As of the end of last year, the Strategic Opportunity Fund I had fallen by nearly 40% to $4.12 a share. And that may be just the tip of the iceberg.

The Financial Industry Regulatory Authority (FINRA) has issued several investor alerts on non-traded REITs, calling attention to the unique risks, features and fees of the products. Among the concerns is the periodic distributions that help make non-traded REITs appealing can, in more and more instances, be heavily subsidized by borrowed funds and include a return of investor principal. Additionally, early redemption of shares is often very limited, and fees associated with sales of non-traded REITs can be especially high and erode total return.

Eight of the largest non-traded real estate investment trusts have lost $11.3 billion, or 37% of their equity value, over the past seven years, according to a recent analysis conducted by MTS Research Advisors behalf of Investment News. Just this month, CNL Lifestyle Properties Inc., which initially raised $2.7 billion at $10 a share, reported a sharp decline in value. Its share price dropped to $7.31.

Similarly, the Dividend Capital Total Realty Trust, which raised $1.8 billion in equity at $10 per share, revised its value to $6.69 per share last month. In March, the REIT reported its value as $8.45 per share to investors.

In the wake of the problems surrounding many non-traded REITs, more investors of the products are coming forth with claims of mischaracterization and misrepresentation on the part of the brokers who initially sold them on the investments. Indeed, some of the common themes in their FINRA arbitration include the fact that the products were presented as suitable investments for conservative investors (they are not), with their lack of liquidity, fees and other risks never disclosed.

For more on non-traded REITs, read FINRA’s Investor Alert.

If you’ve suffered significant financial losses in a non-traded REIT, including the Behringer Harvard Strategic Opportunity Fund I, Inland Western (Retail Properties of America) and others, please contact us to tell your story.

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