Investors in non-traded real estate investment trusts (REITs) have experienced a host of problems with their investments recently, as eight of the largest non-traded REITs report losing $11.3 billion, or 37% of their value, over the past seven years, according to an analysis by Investment News.
Among the non-traded REITs on that list: Behringer Harvard REIT I, Retail Properties of America, Inland American Real Estate Trust, Wells Real Estate Investment Trust II and Dividend Capital Total Realty Trust.
So what exactly has gone wrong with non-traded REITs? According to several investor alerts issued by the Financial Industry Regulatory Authority (FINRA), a number of non-traded REITs have been misrepresented to investors as safe, low-risk investments. In reality, however, many have proved to be the total opposite.
Other issues cited by FINRA regarding non-traded REITs in general include valuation irregularities, illiquidity, high front-end fees, sudden suspension of distributions, and undisclosed risks.
Investors in the Behringer Harvard Strategic Opportunity Fund I are facing the reality of some of those risks, as they learn their investment’s liabilities now exceed the value of its assets.
It isn’t the first time that investors in the Behringer Harvard family of REITs have had to face bad news. Another REIT, the Behringer Harvard Opportunity REIT I, saw its estimated value decline nearly 50% at the end of 2011 to $4.12 a share from $7.66 a year earlier. The news was even more grim for the Behringer Harvard Short-Term Opportunity Fund I LLP: Its valuation dropped to 40 cents a share at the end of December 2011, down from $6.48 a share as of Dec. 31, 2010.