Highly leveraged REITs like Behringer Harvard REIT I, Inland Western Retail Real Estate Trust and others have produced hundreds of thousands of dollars in losses for investors in the past year. As non-traded REITs, the products are not listed on an exchange; they also come with high commissions and fees. Many investors bought into non-traded REITs based on their broker’s sales pitches, which touted steady dividends and a stock price that wouldn’t fluctuate with the market.
That didn’t happen, however. Instead, investors like Robert and Davida Wendorf lost big. As reported June 1 by Bloomberg, the Wendorfs invested $100,000 in 2004 in Inland Western Retail Real Estate Trust. In 2009, Inland cut its payout by 70%. Prior to that, the company had suspended a program under which the Wendorfs could have sold back their shares at the same $10 apiece they initially paid. By the end of 2009, however, the company had reset the stock price to $6.85.
“You can say I was stupid,” said Robert Wendorf, 69, a retired psychotherapist in San Juan Capistrano, California, in the Bloomberg article. “In all honesty you don’t think people sit down and really read all of those papers? Most people do what I did. They trust the guy as he points where to sign.”
The Wendorfs eventually sold their shares in Inland Western at a $45,000 loss.
Regulators are now taking a closer look at the brokers who sell unlisted REITs – which have raised nearly $60 billion since 2000. Specifically, regulators want to know if investors are being properly informed about the products at the time they buy into them.
Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please Contact Us.