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.

Unsuitable investments in Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust have become a growing source of concern for more investors these days. In many cases, sales of Inland REITs were appropriate from the start for some investors. Why? Because the broker/dealers behind the deals failed to disclose all of the necessary information associated with the products, including the high commissions that the REITs commanded. In some instances, those fees exceeded 15%.

The Inland REITs are considered unlisted REITs; they do not trade on national stock exchanges. Redemptions in unlisted REITs are limited and almost always have a minimum holding period. If investors want to exit an unlisted REIT entirely, they usually can only do so at specified times.

Perhaps the biggest criticism of unlisted REITs has to do with their lack of transparency. Unlisted REITs also typically come with no independent source of performance data. Moreover, critics of unlisted REITs cite the often vague prospectus language regarding their formal exit strategies.

In recent months, we’ve heard from several investors who say their broker/dealer never discussed the various risks that investors take on when they purchase shares of an unlisted REIT. In reviewing these complaints, we’ve also discovered that some investors were kept in the dark about the fact that their investment in an unlisted REIT could literally be tied up for an undetermined amount of time in the event the REIT suspends its share-repurchase program.

That’s exactly what happened with Inland American, which suspended its buyback program in March 2009. Investors had two options: Hold onto their shares until buybacks become re-instated or attempt to sell their share, at a significant loss, on the secondary market.

If you believe your broker/dealer failed to provide adequate information concerning investments in the Inland American Real Estate Trust, the Inland Western Retail Real Estate Trust or another unlisted REIT, contact us.

Sales of Inland American REITs have produced a firestorm of financial headaches for investors, many of whom were sold on the products based on inappropriate recommendations from broker/dealers. Investments such as the Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust are non-traded, or unlisted, REITs - financial products that have come under increasingly scrutiny lately because of the potential risks they may carry.

Non-traded REITs are not listed on a stock exchange, and investor redemptions are usually limited to a specified time frame. Most important, non-traded REITs can be pricey to get into, with fees as high as 15%.

In conversations with several investors, Maddox Hargett & Caruso has learned that many individuals who invested in non-traded REITs, including the Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust, were ill-informed by their broker/dealer of the high fees, illiquidity and other risks tied to the products. If you suffered investment losses in either of these REITs or another non-traded REIT, contact us to tell your story. 

Investments in Inland American REITs have backfired for investors throughout the country. In many instances, these products - including the Inland American Real Estate Trust and Inland Western Retail Real Estate Trust - were pitched by broker/dealers as a low-risk, conservative investment. In reality, however, investors were putting their money into non-traded REITs, and the qualities that define these REITs are anything but conservative.

Non-traded REITs (or unlisted REITs) are not listed on a stock exchange. Redemptions in them are limited at best. Perhaps the biggest downside to non-traded REITs is their fees, which in some cases can be upwards of 15%.

Many investors were woefully unaware of the high fees associated with their non-traded REITs - until it was too late. And for some broker/dealers, that’s just what they had in mind when they pitched these products to their conservative clients.

Maddox Hargett & Caruso is investigating a number of non-traded REITs, including the Inland American Real Estate Trust and Inland Western Retail Real Estate Trust. If you suffered investment losses in either of these REITs or another non-traded REIT, contact us to tell your story. A member of our securities fraud team will work with you to determine if some or all of your losses can be recovered.

Inland American Real Estate Trust is among several unlisted real estate investment trusts (REITs) to face a wave of backlash from investors lately. Why? Because many independent broker/dealers and their financial advisers misrepresented the risks and characteristics of unlisted REITs like the Inland American Real Estate Trust. Only now are many retail investors coming to terms with the collateral damage that has taken place in their portfolios.

To be sure, sales of unlisted (also known as non-traded) REITs are booming. Unlisted REITs raised more than $10 billion in 2008.

Sold through broker/dealers, shares in unlisted REITs do not trade on national stock exchanges. Redemptions are limited and usually include a minimum holding period. If an investor does decide to get out of the trust entirely, he or she can usually only do so on a specified date.

There are several other caveats associated with unlisted REITs, not the least of which is an exorbitant fee of up to 15% to get in. And that’s in addition to ongoing management fees and other expenses. Even more important: Unlisted REITs often offer no independent source of performance data. They also fail to offer investors a guarantee that their dividend payments will continue throughout their planned investment period in the REIT. 

Non-Traded REITs: Considerations for Hotel Investors by John B. Corgel and Scott Gibson provides an in-depth look at unlisted REITs and the unintended consequences that the products may create for individual investors who do not conduct their own due diligence.

Specifically, the study - which claims to be the first professional and academic report to analyze the structure of non-traded REITs - shows that investors who purchased hospitality REITs early in the investment cycle saw a diminished return as a result of subsequent sales. In other words, the early investors subsidize the commissions paid to the dealers who sell to late-term investors, the report says. 

One of the criticisms cited in the report - and one which has been touted in general by critics of unlisted REITs - is the vague prospectus language regarding exit strategies.

The fixed share prices of non-traded REITs are another bone of contention with naysayers of the products. Often marketed to investors as a selling point, the fixed share price can actually become an unwanted feature. Says Non-Traded REITs: Considerations for Hotel Investors: 

“ . . . this policy of maintaining fixed share prices in companies that continually offer shares at the same or similar fixed prices throughout the investment cycle will have adverse consequences to investors who buy into programs early in the cycle.” 

To their detriment, investors throughout the country may have purchased shares in non-traded REITs like the Inland American Real Estate Trust based on misrepresentations by their brokerage firm. That advice has now proven to financially disastrous. Instead of access to their cash, investors are finding themselves left out in the cold - their money locked up for an undetermined period of time in these illiquid, high-commission products. 

Maddox Hargett & Caruso continues to investigate the selling practices of brokerage firms such as UBS, Merrill Lynch, Citigroup, LPL Linsco, Morgan Keegan & Company, as well as others that may have recommended unsuitable investments in non-traded REITs to their clients. If you have a story to tell about your investment losses in non-traded REITs, contact us.