Their names may be different – Cornerstone Core Property, Inland American, Inland Western and Behringer Harvard REIT I – but these non-traded real estate investment trusts (REITs) have produced similar financial woes for their investors.

Non-traded REITs can be tricky investments. The products do not trade on national stock exchanges. Redemptions in them are limited at best; most non-traded REITs entail a lengthy holding period – in some instances, up to eight years.

The biggest fault concerning non-traded REITs is one of transparency. Non-traded REITs generally provide no independent source of performance data for investors. Instead, investors must rely on the broker/dealer responsible for pitching and selling the the investment.

And therein lies the problem.

In recent months, numerous complaints have come to light concerning non-traded REITs and, specifically, the broker/dealers behind the deals. Investors allege that they were never given complete details about their investment, as well as the many risks associated with non-traded REITs in general.

The lack of disclosure may have something to do with the high commissions and fees that broker/dealers take in from sales of non-traded REIT shares. In many cases, these fees are 15% or more.

This year, many investors in non-traded REITs have had to face a harsh reality. Instead of getting the stability, liquidity and a reliable source of income they were initially promised by their broker/dealers, they received dividend cuts and elimination of shareholder redemption programs.

Earlier this year, the Financial Industry Regulatory Authority (FINRA) began to take a keen interest in non-traded REITs by conducting a sweep of the promotion practices and sales of broker/dealers associated with the products.

Maddox Hargett & Caruso currently is investigating sales of non-traded REITs, including Cornerstone, Inland American, Inland Western and Behringer Harvard. If you’ve suffered financial losses of $100,000 or more in a non-traded REIT and believe those losses are the result of inadequate information on the part of your broker/dealer, please Contact Us.

Inland American Real Estate Trust has reset the value of its common shares to $8.03. For investors, it isn’t good news; the price is down from the $10 that the shares sold for when the non-traded REIT was first launched in 2005.

Inland announced the reset on Sept. 21 in an 8-K filing with the Securities and Exchange Commission (SEC). Inland also stated in the filing that it “gives no assurance that a stockholder would be able to resell his or her shares at the new estimated value.”

“We believe the current downturn in the economy has depressed the value of our assets and hence the estimated value of our shares,” Inland said. “The value of our shares will likely change over time and will be influenced by changes to the value of our individual assets as well as changes and developments in the real estate and capital markets.”

Other non-traded have followed Inland lead in resetting their values. Among them: Behringer Harvard REIT I, which reset its shares to $4.25 earlier this summer, and KBS REIT, which reset its value to $7.17 in late 2009.

Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please contact us.

Behringer Harvard REIT I, which raised $2.9 billion from its 2003 launch to the end of its final offering in December 2008, has reduced its share value as of May 17 to $4.25, plus cut its annualized dividend rate to 1%, according to a regulatory filing. For countless investors, this revaluation has been a crushing blow financially.

Nontraded real estate investment trusts (REITs) are now capturing the attention of regulators, who want to know exactly what brokers did and did not disclose to investors about the products. In March 2009, the Financial Industry Regulatory Authority (FINRA) officially opened an investigation into nontraded REITs with an examination of documentation and data from various brokers who sell the investments.

Among other things, FINRA’s focus is on whether the sales were suitable and whether the firms made misleading statements to investors regarding fees, dividends and liquidity.

As reported June 1 by Bloomberg, nontraded REITs often appeal to unsophisticated investors who may not understand the extent of risks that the products present. Those risks can include huge broker fees and commissions, unexpected share devaluation, dividend cuts and suspension of buyback programs.

Many investors with nontraded REITs have experienced significant financial losses because of the fraudulent representations made by their broker. Specifically, investors who’ve filed arbitration claims allege that the products were presented as low risk and that critical information was never disclosed.

Behringer Harvard REIT I and Inland Western Retail Real Estate Trust are among a number of nontraded REITs that have reduced dividends to shareholders in the past year. Other firms such as Cole Credit Property Trust II, Hines Real Estate Investment Trust Inc. and Wells Real Estate Investment Trust II suspended or limited redemptions this year and in 2009.

Maddox Hargett & Caruso currently is investigating sales of nontraded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning a nontraded REIT, please Contact Us.

Highly leveraged REITs like Behringer Harvard REIT I, Inland Western Retail Real Estate Trust and others have produced hundreds of thousands of dollars in losses for investors in the past year. As non-traded REITs, the products are not listed on an exchange; they also come with high commissions and fees. Many investors bought into non-traded REITs based on their broker’s sales pitches, which touted steady dividends and a stock price that wouldn’t fluctuate with the market.

That didn’t happen, however. Instead, investors like Robert and Davida Wendorf lost big. As reported June 1 by Bloomberg, the Wendorfs invested $100,000 in 2004 in Inland Western Retail Real Estate Trust. In 2009, Inland cut its payout by 70%. Prior to that, the company had suspended a program under which the Wendorfs could have sold back their shares at the same $10 apiece they initially paid. By the end of 2009, however, the company had reset the stock price to $6.85.

“You can say I was stupid,” said Robert Wendorf, 69, a retired psychotherapist in San Juan Capistrano, California, in the Bloomberg article. “In all honesty you don’t think people sit down and really read all of those papers? Most people do what I did. They trust the guy as he points where to sign.”

The Wendorfs eventually sold their shares in Inland Western at a $45,000 loss.

Regulators are now taking a closer look at the brokers who sell unlisted REITs – which have raised nearly $60 billion since 2000. Specifically, regulators want to know if investors are being properly informed about the products at the time they buy into them.

Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please Contact Us.

Non-traded REITs such as Behringer Harvard REIT I, Behringer Harvard Opportunity, Wells Real Estate Investment Trust II, Inland America Real Estate Trust and Inland Western Retail Real Estate Trust may become more transparent thanks to a new platform under development by the Depository Trust and Clearing Corporation (DTCC).

As reported June 6 by Investment News, the intent of the platform it to provide standards, centralize data and automate transactions for alternative investments like private placements, non-traded real estate investment trusts, limited partnerships and hedge funds. Through the new platform, the DTCC will operate as a go-between among firms that create alternative investments and the broker/dealers and companies selling them.

The platform – called the Alternative Investment Product (AIP) – currently is being used by Pershing LLC. The Charles Schwab Corp. is testing it, according to the Investment News story, and National Financial Services LLC, a clearing unit of Fidelity Investments, plans to have it operating by 2011.

In the interim, about 15 DTCC- affiliated sponsors of alternative investment products are testing the platform.

Alternative investments like non-traded REITs and private placements have come under fire by regulators in recent months for their lack of transparency. In July 2009, the Securities and Exchange Commission (SEC) filed fraud charges against the Tustin, California, lender Medical Capital Holdings in connection to private placements that the company issued to more than 20,000 investors nationwide.

Non-traded REITs also faced intense scrutiny lately. Last year, some of the most prominent non-traded REITs, including Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust and Piedmont Office Realty Trust slashed dividends to investors and/or shut down their redemption programs.

The AIP is intended to standardize the way the alternative investment industry communicates information about these types of investments, providing more new clarity.

“The challenge for many alternative investments is that they’re non-standardized,” said one anonymous industry executive in the June 6 Investment News story. “They’re not always priced and valued on a regular basis. This is an investor need, a broker/dealer need.”

Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II and Piedmont Office Realty Trust are non-traded real estate investment trusts, or REITs – an industry that has garnered new interest from the Financial Industry Regulatory Authority (FINRA).

As reported May 28 by Investment News, FINRA is paying close attention to non-traded REITs and, in particular, the ways in which broker/dealers marketed and sold the products to investors.

Non-traded REITs are considered illiquid investments because they do not trade on a stock exchange. The majority of non-traded REITs have a specific time frame that outlines when investors can redeem their REIT shares. Non-traded REITs also come with high commissions and fees, a fact that may lead some broker/dealers to misrepresent the products for personal profit.

The market for non-traded REITs experienced an especially tumultuous year in 2009. Many of the largest non-traded REITs either slashed dividends to investors, shut down redemption programs or both.

In March 2009, for instance, the Behringer Harvard REIT I suspended shareholder redemption requests. A short time later, it announced plans to slash annualized dividends from 6.5% to 3.25%, based on an original share purchase price of $10.  The Behringer Harvard Opportunity REIT I also halted its shareholder redemptions.

Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please Contact Us.

The Senate investigation into Goldman Sachs unveils undeniable evidence about the risks of collateralized debt obligations (CDOs) and how Wall Street’s repackaging of the products produced not only billions of dollars in losses for investors, but also fueled a financial tsunami across the globe.

A May 2 story in the Wall Street Journal details the multiplier effect of what happened when Wall Street banks replicated certain toxic bonds into numerous securities, or CDOs. The article highlights one $38 million mortgage-related bond that was created in June 2006 and ended up in more than 30 debt pools. According to the article, that one bond ultimately caused “$280 million in losses to investors by the time the bond’s principal was wiped out in 2008.”

Goldman Sachs has spent the past week responding to questions and accusations from the Senate Permanent Subcommittee on Investigations on whether the firm and several employees helped inflate the housing bubble and then profited when the market collapsed.

On April 16, Goldman Sachs was named in civil fraud lawsuit by the Securities and Exchange Commission (SEC). The SEC accused Goldman of creating and selling a mortgage investment that was secretly intended to fail. The SEC’s lawsuit also names Goldman Vice President Fabrice Tourre, who helped create and sell the investment at the center of the SEC’s fraud allegations.

Non-traded REITs have become popular investment vehicles in a relatively short time span, due in part to aggressive marketing tactics by some brokers who, in turn, reap the benefits via big commissions and/or fees. For many retail investors, however, non-traded REITs are not all that they may seem.

Non-traded REITs do not trade on a stock exchange. That makes them an illiquid investment, one that investors can’t get rid of even if they want to. The majority of non-traded REITs impose a specific time frame in which investors are allowed to actually redeem their REIT shares. In many cases, this is seven years. The lack of publicly available analysis on non-traded REIT is yet another common complaint about the non-traded REIT industry.

In addition, non-traded REITs are not necessarily a consistent and reliable source of income. Despite assurances by brokers who sell them, a number of non-traded REITs have recently eliminated their dividends to investors or shut down or drastically limited their share repurchase programs.

REIT Wrecks, a Web site that provide in-depth analysis of the REIT market, has created an interesting – and revealing – chart that compares the dividends, leverage and fees of non-traded REITs. As noted, a number of REITs have entered into troubled and/or potentially troubled waters. Among them: Behringer Harvard MultiFamily I, Cole Credit Property Trust III, KBS I, Inland American, Cornerstone Growth & Income, among others.

The bottom line: When considering a non-traded REIT as part of your investment portfolio, think long and hard. The cons may far exceed any potential rewards.

Investors turned to the Behringer Harvard REIT for safe investing, but are now stuck holding essentially worthless positions.

In an attempt to avoid the risk of investing in the stock market, some investors chose real estate investment trusts (REITs). REITs are specialized entities that own or manage income-producing real estate. They are established to avoid corporate taxes, allowing pass-through taxation to the investors.

Financial advisors have recommended people invest a substantial portion of their nest egg in REITs, representing them as safe and conservative investments for retirement. The advisors may not disclose the REITs underlying financial condition and the risks of the investment becoming illiquid. One such example is the Behringer Harvard REIT I. This REIT never made any money and is now completely illiquid, thereby preventing investors from selling their positions. The REIT was sold to inexperienced and conservative investors, who are now stuck holding essentially worthless positions.

Failure to disclose these and other potential risks to investors could be violation of Securities laws and could also lead to a host of other viable legal claims, such as breach of fiduciary duty.

If you have suffered investment losses from REITs, contact us to tell us your story. We want to counsel you on your options.

The Behringer Harvard REIT and other unlisted real estate investment trusts like it are generating a myriad of questions by investors who say their broker/dealer misrepresented the products as safe investment vehicles that offered guaranteed dividends and little to no volatility.

Some broker/dealers and their financial reps may have been motivated by the large commissions – 15% is typical – tied to sales of unlisted REITs. Investors, however, may be unaware of these hefty fees. They also may not clearly understand the liquidity and valuation issues associated with unlisted REITs versus publicly traded REITs.

Unlisted REITs – also referred to as non-traded REITs – are registered with the Securities and Exchange Commission (SEC) but they don’t trade on national stock exchanges or over counter. Retail investors who invest in unlisted REITs purchase shares through a broker/dealer, with the idea that they will collect a steady dividend check from their investment.

It’s the fine print surrounding unlisted REITs that often comes back to haunt investors. Unlisted REITs can tie up investors’ money for years. In other words, an investor’s money essentially is “illiquid” until the end of the investing term. That means any shares in the REIT cannot be sold before that specified date.

In addition, it’s more and more common for unlisted REITs to deny redemption requests altogether if too many investors attempt to redeem their investments at once.

It’s also become increasingly common for some of biggest names in the non-listed REIT business to cut their dividends to investors. As reported by Investment News last fall, several of the most prominent non-traded REITs did just that, including the Behringer Harvard REIT I.

If you were ill-advised about the risks of investing in unlisted REITs like the Behringer Harvard REIT, contact our securities fraud team. We will evaluate your situation to determine if you have a viable claim for recovery.