Non-Traded REIT Losses, What You Need To Know
REIT, which stands for real estate investment trust, is a company that owns and manages a portfolio of real estate-related assets such as shopping centers, office buildings, hotels, and mortgages. In the REIT world, there are several types of REITs, including publicly traded REITs and non-traded REITs.
Unlike publicly traded REITs, non-traded REITs are not traded daily on a stock exchange. Non-traded REITs also have limited liquidity, which means they are not a consistent and reliable source of income for investors. Other features of non-traded REITs include hefty upfront fees and commissions of up to 15%, unexpected share devaluation, dividend cuts and suspension of buyback programs. Moreover, money in non-traded REITs is tied up a long time, usually up to seven years.
The current economic environment has had a negative effect on many non-traded REITs, with several big-name non-traded REITs – Behringer Harvard REIT I and Inland American, Cole Credit Property Trust II, Hines Real Estate Investment Trust Inc. and Wells Real Estate Investment Trust II among them – announcing either dividend cuts, share devaluation and suspension of their redemption programs.
The lack of transparency surrounding non-traded REITs has come under increased scrutiny in recent months. In March 2009, the Financial Industry Regulatory Authority (FINRA) officially opened an investigation into non-traded REITs and the broker/dealers pitching the products to investors.
Among other things, FINRA wants to know if the sales of non-traded REITs were suitable and whether the firms behind those sales made misleading statements about fees, dividends and liquidity of the products to investors.
The potential inability to trade and liquidate shares, as well as elimination of dividends, has translated into major financial losses for many non-traded REIT investors over the past year. Many of these individuals have since filed arbitration claims against their broker/dealer, accusing them of misrepresenting their investments and failing to disclose the potential risks associated with non-traded REITs.
Maddox Hargett & Caruso is currently investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning investments in a non-traded REIT, please contact us.