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Non-Traded REIT Claims Growing

The number of arbitration claims involving non-traded real estate investment trusts (REITs) is growing, with investors alleging they were misled by their broker/dealer regarding the risk factors of these products.

Specifically, investors contend their investments in non-traded REIT were characterized as “low-risk” investments. Moreover, they were caught off guard regarding share devaluations of various non-traded REIT programs and ongoing dividend cuts.

In many cases, the broker who is selling shares in non-traded REITs has an appealing pitch to investors, with statements that promise steady dividends and stock prices that will not fluctuate with the market.

That’s what happened to Robert and Davida Wendorf. As reported June 1 by Bloomberg, the couple invested $100,000 in Inland Western Retail Real Estate Trust Inc. in 2004. In 2009, the Inland REIT slashed its payout by 70%.

Wendorf says he mistakenly trusted the broker who recommended the Inland REIT. Eventually, Wendorf sold Inland Western at a $45,000 loss.

Wendorf is not alone. Many investors are coming forth with claims stating they were never properly informed about the risks associated with non-traded REITs.  As a result, regulators like the Financial Industry Regulatory Authority (FINRA) have stepped up their scrutiny of the products, launching investigations into how non-traded REITs are marketed, advertised and recommended to investors.

Inland Western and Behringer Harvard REIT I are among non-traded REITs that have reduced their dividends. Other programs, including Cole Credit Property Trust II Inc. and Wells Real Estate Investment Trust II Inc., have suspended or limited redemptions this year, as well as in 2009, according to the Bloomberg article.

In September, the Wendorfs filed an arbitration claim with FINRA, accusing their broker/dealer of putting them in about $575,000 investments they allege were inappropriate. Wendorf, who says he and his wife lost about $250,000 in the technology bubble, had initially asked his broker to put them in conservative investments.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who suffered financial losses in non-traded REITs. If you believe your broker/dealer misrepresented the risks of non-traded REITs, contact us.

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