Wells REIT II: Bad News For Investors

Non-traded real estate investment trusts (REITs) have sounded an alarm for regulators and investors alike this year. Now, it appears another non-traded REIT – Wells II – is joining the bad news list for investors. Securities issued by Wells REIT II were initially priced at $10 a share; now they’re worth only an estimated $7.47.

Wells Real Estate Funds is considered a big name in the non-traded REIT industry. Its Wells REIT II raised nearly $6 billion from public offerings as of June 30, according to filings with the Securities and Exchange Commission (SEC).

The announcement of Wells REIT II’s new estimated share value comes on the heels of concerns by regulators about how non-traded REIT sponsors show a value for their REIT.

In September, the Financial Industry Regulatory Authority (FINRA) issued a rule proposal designed to drastically change the way non-traded REITs show their values on client account statements. As reported Nov. 9 by Investment News, FINRA’s proposal takes aim at the big commissions and other upfront costs that brokers collect when selling non-traded REITs.

Non-traded REITs can be highly risky investments. Because they do not trade on a national stock exchange, they are illiquid. The products also lack transparency, have limited and lengthy redemption periods, and come with exceptionally high commissions and other upfront fees and charges.