For quite some time now, a lack of attractive fixed income yields has created serious issues for many investors, especially seniors. Certificates of deposit (CDs) are paying almost nothing, and interest payments on bonds are on a greater decline than a shopper's savings account during the holiday season. Therefore, many investors are turning to public, non-listed real estate investment trusts (REITs), which promise attractive quarterly distributions - 6.5% a year with full return of the invested principal. However, investors must realize that public, non-listed REITs have a multitude of risks that most stocks, bonds, and CDs do not, and many investment advisers do not believe that public, non-traded REIT distributions compensate for those risks. Some of the public, non-listed REITs to watch out for are: Apple, Behringer, Pacific Cornerstone, Desert Capital, Inland American, Inland Western, KBS, and Retail Properties of America.
REITs invest in a diversified set of income producing real estate properties and mortgages, and they must distribute 90 percent of net earnings to investors. REITs allow investors to partake in real estate investing without directly owning property, which may lock up large amounts of money for longs periods of time. The most popular REITs are publicly traded on a stock exchange such as the New York Stock Exchange (NYSE) - they are relatively transparent in their finances and operations and are covered extensively by investment analysts. Private REITs are not publicly traded, listed, or registered with securities regulators and are supposed to be available only to accredited investors - $1 million or more in assets or $200,000.00 in annual income. Public, non-listed REITs disclose their finances publicly and offer shares to the public, but they do not list their shares on an exchange, which is one of many risk factor associated with them.
The following are some of the risks associated with investing in public, non-listed REITs:
-High fees: non-listed REITs pay brokers and financial advisers large commissions, oftentimes 10 percent of the amount invested. Numerous REITs also charge investors ongoing management fees, and some of them charge fees when an investor wants to liquidate.
-Share value: more than half of non-listed REITs are sold in $10 per share allotments to investors. After the real estate bubble popped and credit markets fell apart, many REITs lost most of their value. A lack of an efficient secondary market makes it almost impossible to successfully auction off shares to recover some of the lost principal.
-Liquidity: REIT investors usually find that their original investment is locked in for seven to ten years. Also, many REITs refuse share-redemption requests except in emergency cases such as death or disability.
-Distribution cuts: many REITs are not generating enough income to pay distributions owed to shareholders. In order to circumvent this dilemma, REITs are financing payments owed by selling more shares, selling off properties, or cutting dividends.
Regulators have begun to closely scrutinize public, non-listed REITs. In 2009, the Financial Industry Regulatory Authority (FINRA) began to examine how broker-dealers advertised and sold REITs. In fact, FINRA recently ordered David Lerner and Associates (NYSEMKT:DLA) of Syosset, NY to pay $12 million to investors who were sold shares of Apple REIT. FINRA found that DLA was providing misleading materials to unsophisticated investors nationwide, which included elderly clients.
Have you suffered losses in a public, non-listed real estate investment trust such as David Lerner and Associates' Apple REIT? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at firstname.lastname@example.org for answers to any of your questions about this blog post and/or any related matter.