Corporate & Securities Law

Non-Traded REITs: Look Before You Leap

By Steven Caruso

Non-traded REITs have become popular investment vehicles in a relatively short time span, due in part to aggressive marketing tactics by some brokers who, in turn, reap the benefits via big commissions and/or fees. For many retail investors, however, non-traded REITs are not all that they may seem.

Non-traded REITs do not trade on a stock exchange. That makes them an illiquid investment, one that investors can?t get rid of even if they want to. The majority of non-traded REITs impose a specific time frame in which investors are allowed to actually redeem their REIT shares. In many cases, this is seven years. The lack of publicly available analysis on non-traded REIT is yet another common complaint about the non-traded REIT industry.

In addition, non-traded REITs are not necessarily a consistent and reliable source of income. Despite assurances by brokers who sell them, a number of non-traded REITs have recently eliminated their dividends to investors or shut down or drastically limited their share repurchase programs.

REIT Wrecks, a Web site that provide in-depth analysis of the REIT market, has created an interesting - and revealing - chart that compares the dividends, leverage and fees of non-traded REITs. As noted, a number of REITs have entered into troubled and/or potentially troubled waters. Among them: Behringer Harvard MultiFamily I, Cole Credit Property Trust III, KBS I, Inland American, Cornerstone Growth & Income, among others.

The bottom line: When considering a non-traded REIT as part of your investment portfolio, think long and hard. The cons may far exceed any potential rewards.

Full post as published by Representing Investors on April 23, 2010 (boomark / email).