Corporate & Securities Law

Non-Traded REITs: Brokers Love Them, Investors Not So Much

By Keith Griffin

Non-traded real estate investments trusts (REITs) like Behringer Harvard REIT and Inland Western are a big hit with independent broker/dealers and financial advisors for their high commissions - sometimes up to 15%. Meanwhile, investors who buy non-traded REITs often find themselves in the dark, unaware of how the products actually work and the potential risks they hold.

Non-traded REITs, or unlisted REITs, do not trade on national stock exchanges. When an investor wants to redeem his or her shares in a non-traded REIT, there is a specific window of time in which to do so. In most instances, the holding period associated with non-traded REITs is at least seven years.

One of the biggest challenges of non-traded REITs is a lack of transparency, as well as a lack of any publicly available analysis. Prospectus language, too, is typically vague, especially when it pertains to getting out of a non-traded REIT.

In the past year, a number of well known non-traded REITs have either slashed dividends or drastically limited their redemption programs. In response, more investors are coming forth with complaints that they were sold non-traded REITs when, in fact, they were actually looking for a safe, conservative investment - something that a non-traded REIT is most definitely not. In reality, non-traded REITs are considered high risk and illiquid.

When a non-traded REIT program decides to suspend redemptions it, in turn, will no longer buy back an investor?s shares in the REIT. This leaves investors - many of whom are counting on consistent dividends from their investment - empty-handed.

Maddox Hargett & Caruso continues to investigate the selling practices of independent broker/dealers and investment firms such as UBS, Merrill Lynch, Citigroup, Morgan Keegan & Company, as well as others that may have recommended unsuitable investments in non-traded REITs to clients. If you have a story to tell about your investment losses in non-traded REITs, we encourage you to contact us.

Full post as published by Representing Investors on February 23, 2011 (boomark / email).