The market value of non exchange traded real estate investment trusts (REITs) continue to decline. Earlier this week, CNL Lifestyle Properties Inc. became the latest large nontraded REIT to report a sharp decline in value with its share price dropping to $7.31. CNL initially raised $2.7 billion with shares originally priced at $10 a share.
Dividend Capital Total Realty Trust Inc., which raised $1.8 billion in equity at $10 per share, recently revised its value to $6.69 per share, down from $8.45 a share in March of this year.
Many brokers sold nontraded REITs to clients and characterized them as bond alternatives during the surge in the commercial real estate market, which peaked in 2007. Retirees counting on a dependable stream of income as well as the ability to liquidate their investment in the event of financial emergency have been hit the hardest. Many of these REITs have ceased making distributions and have cancelled their buyback programs. If liquidity is needed, a secondary market, which generally discounts the company "estimated value" by 25% or more is the only option. Assuming such a discount would apply on the liquidation of CNL, the shares would only yield about $5.50. a loss of nearly 50% of the initial purchase price.
For the time being, it appears CNL will continue making distributions, although the annual return is far less than what was touted when they were raising capital. Investors should also be aware that distributions from CNL do not come from income, but rather have been and may continue to be funded with borrowed money. Obviously, incurring debt will likely cause a decline in market value of the investment, meaning you are essentially just getting a distribution of principal.
If you were misled as to the nature of your investment in CNL or any other nontraded REIT, please contact us to discuss your options for recovery of your losses. We have been assisting investors nationwide for over twenty years.
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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.