Non-Traded REITs In FINRA Spotlight
Non exchange traded REITs were the focus of a speech given last week by FINRA's Executive VP of Sales Practice Regulation, Susan F. Axelrod. Her remarks, which can be accessed here, were presented to the Securities Industry and Financial Markets Association's (SIFMA) Complex Product Forum in New York.
Since the beginning of the year, we have written extensively on the issues associated with non-traded REITs. Follow this link for those prior articles. Non-traded REITs are publicly registered investments that are not traded on a national securities exchange, making them highly illiquid. If an investor needs or desires to liquidate the investment, there are very few alternatives and the investor can expect to suffer a hefty discount on whatever value the company has recently announced to the fair market value.
Behringer Harvard REIT , which sells at less than half its $10 offering price, was just hit with a class action last month. Other popular non-traded REITs whose values have dropped significantly in the past few years include:
- Retail Properties of America
- Inland American
- Wells REIT II
- KBS REIT I
- CNL Lifestyle Properties
- Dividend Capital REIT
- Hines REIT
Ms. Axlerod's observations that FINRA examiners have found that investors are often confused about the features, fees and liquidity of these REITs coincides with what we have heard from many of our clients. These products were often sold as an alternative to bonds with the expectation that distributions would be from income (rather than debt), that the distributions would be continuous and that the value of the investment would remain stable. Most investors we have spoken to were unaware that these investments are quite illiquid.
Now many investors find themselves in a predicament since distributions have ceased, the investment is worth a fraction of it's purchase price and there is no ready market where it can be liquidated.
Brokers owe a duty to investors to make suitable recommendations and to accurately and fully explain the risks associated with a proposed investment. If you have suffered losses in non traded REITs and believe that you were misled regarding the risks, you may be able to recover some or all of your losses. Contact us if you have questions.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.