The most commonly known and widely purchased non-traded REITs are:
- Inland American
- Inland Western
- Behringer Harvard
- Retail Properties of America
- Dividend Capital Total Realty Trust
- CNL Lifestyle
Non-Traded Equals Non Liquid
REIT is an acronym for real estate investment trust, and they were created to give investors access to investments in large real estate projects. REITs are required to have the majority of their assets invested in real estate and must distribute at least 90% of taxable income annually. The typical REIT investment is a shopping center, mall, office building or healthcare project.
There are both traded REITs and non-traded REITs. The former, traded REITs are bought and sold on conventional exchanges and are not only liquid, but easily valued as well. The latter , non-traded REITs are the current problem for many investors who were convinced to buy them with the promise of steady and dependable distributions of income and with no understanding of the problem caused by their lack of liquidity.
This lack of liquidity means an investor has no access to cash in case of emergency or if needed for daily living expenses. These non liquid assets are a very bad choice for retirement accounts, yet many were sold.
Value is another problem. Since there is no market there is no dependable way to determine fair market value. The estimated value provided by the companies themselves is generally overstated by as much as 100%. Should the investor be forced to liquidate the only choice is one of a number of privately operated secondary markets that buy and sell non-traded REITs. See our prior posting on this issue.
For example, KBS REIT I's estimated value recently was $5.18. Only weeks after that value was published by the company, I surveyed the secondary market makers and could not get a quote higher than $2.50.
The commissions investors paid, generally unknowingly, for the non-traded REITs are extraordinarily high, 12% or more, thereby affording some insight into the motivation of the broker to make the recommendation.
As investors now have become painfully aware, most of these investments have ceased making distributions and have cancelled their buy back plans leaving many retirees having to adjust their standard of living to the decreased cash flow.
If you have losses on non-traded REITs you may be able to recover all or a part of your losses through FINRA arbitration. We have been helping investors nationwide recover stock market losses.
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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.