Inland American Real Estate Trust Inc. is being investigated by the Securities and Exchange Commission according to that firm's quarterly report. The SEC's investigation is reportedly focusing on fees. Inland American is the industry's largest non-traded real estate investment trust, and has $11.2 billion in real estate assets. Inland American is one of five REITs sponsored by The Inland American Real Estate Group of Companies Inc.
REITs typically pay a high commission-often as much as 15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Due to the relatively high interest or dividend offered by non-traded REITs, elderly and retirees are often victimized by those misrepresented and unsuitable investment recommendations.
In addition to issues over fees, non-traded REITs have been cited for valuation problems. Over the past year, a number of non-traded REITs have been forced by regulators to stop valuing their REITs at the purchase price (which was false and misleading to investors) and disclose to investors an estimated true value. This has resulted in a wave of sharp decreases from previously reported values that have shocked investors. A related REIT, Retail Properties of America Inc., formerly known as Inland Western Retail Real Estate Trust Inc., recently had an initial public offering at $3.20 per share when just last June, that REIT's management said its estimated value was $6.95 per share.
InvestmentNews recently reported that the following non-traded REITs had suffered steep losses, as follows:
Behringer Harvard Short-Term Opportunity Fund - down 96%
Cornerstone Core Properties REIT - down 71.88%
Behringer Harvard Opportunity REIT I - down 58.80 %
Behringer Harvard REIT I - down 53.60%
KBS Real Estate Investment Trust Inc. - down 48.40%
Inland Western Retail Real Estate Trust Inc. - down 30.50%.
The Financial Industry Regulatory Authority (FINRA) is also investigating the non-traded REIT industry, and has commenced enforcement actions against some broker-dealer managers like Pacific Cornerstone Capital.
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