Category Archives: Behringer Harvard REIT

Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II and Piedmont Office Realty Trust are non-traded real estate investment trusts, or REITs – an industry that has garnered new interest from the Financial Industry Regulatory Authority (FINRA).

As reported May 28 by Investment News, FINRA is paying close attention to non-traded REITs and, in particular, the ways in which broker/dealers marketed and sold the products to investors.

Non-traded REITs are considered illiquid investments because they do not trade on a stock exchange. The majority of non-traded REITs have a specific time frame that outlines when investors can redeem their REIT shares. Non-traded REITs also come with high commissions and fees, a fact that may lead some broker/dealers to misrepresent the products for personal profit.

The market for non-traded REITs experienced an especially tumultuous year in 2009. Many of the largest non-traded REITs either slashed dividends to investors, shut down redemption programs or both.

In March 2009, for instance, the Behringer Harvard REIT I suspended shareholder redemption requests. A short time later, it announced plans to slash annualized dividends from 6.5% to 3.25%, based on an original share purchase price of $10.  The Behringer Harvard Opportunity REIT I also halted its shareholder redemptions.

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.

The Senate investigation into Goldman Sachs unveils undeniable evidence about the risks of collateralized debt obligations (CDOs) and how Wall Street’s repackaging of the products produced not only billions of dollars in losses for investors, but also fueled a financial tsunami across the globe.

A May 2 story in the Wall Street Journal details the multiplier effect of what happened when Wall Street banks replicated certain toxic bonds into numerous securities, or CDOs. The article highlights one $38 million mortgage-related bond that was created in June 2006 and ended up in more than 30 debt pools. According to the article, that one bond ultimately caused “$280 million in losses to investors by the time the bond’s principal was wiped out in 2008.”

Goldman Sachs has spent the past week responding to questions and accusations from the Senate Permanent Subcommittee on Investigations on whether the firm and several employees helped inflate the housing bubble and then profited when the market collapsed.

On April 16, Goldman Sachs was named in civil fraud lawsuit by the Securities and Exchange Commission (SEC). The SEC accused Goldman of creating and selling a mortgage investment that was secretly intended to fail. The SEC’s lawsuit also names Goldman Vice President Fabrice Tourre, who helped create and sell the investment at the center of the SEC’s fraud allegations.

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.

Investors turned to the Behringer Harvard REIT for safe investing, but are now stuck holding essentially worthless positions.

In an attempt to avoid the risk of investing in the stock market, some investors chose real estate investment trusts (REITs). REITs are specialized entities that own or manage income-producing real estate. They are established to avoid corporate taxes, allowing pass-through taxation to the investors.

Financial advisors have recommended people invest a substantial portion of their nest egg in REITs, representing them as safe and conservative investments for retirement. The advisors may not disclose the REITs underlying financial condition and the risks of the investment becoming illiquid. One such example is the Behringer Harvard REIT I. This REIT never made any money and is now completely illiquid, thereby preventing investors from selling their positions. The REIT was sold to inexperienced and conservative investors, who are now stuck holding essentially worthless positions.

Failure to disclose these and other potential risks to investors could be violation of Securities laws and could also lead to a host of other viable legal claims, such as breach of fiduciary duty.

If you have suffered investment losses from REITs, contact us to tell us your story. We want to counsel you on your options.

The Behringer Harvard REIT and other unlisted real estate investment trusts like it are generating a myriad of questions by investors who say their broker/dealer misrepresented the products as safe investment vehicles that offered guaranteed dividends and little to no volatility.

Some broker/dealers and their financial reps may have been motivated by the large commissions – 15% is typical – tied to sales of unlisted REITs. Investors, however, may be unaware of these hefty fees. They also may not clearly understand the liquidity and valuation issues associated with unlisted REITs versus publicly traded REITs.

Unlisted REITs – also referred to as non-traded REITs – are registered with the Securities and Exchange Commission (SEC) but they don’t trade on national stock exchanges or over counter. Retail investors who invest in unlisted REITs purchase shares through a broker/dealer, with the idea that they will collect a steady dividend check from their investment.

It’s the fine print surrounding unlisted REITs that often comes back to haunt investors. Unlisted REITs can tie up investors’ money for years. In other words, an investor’s money essentially is “illiquid” until the end of the investing term. That means any shares in the REIT cannot be sold before that specified date.

In addition, it’s more and more common for unlisted REITs to deny redemption requests altogether if too many investors attempt to redeem their investments at once.

It’s also become increasingly common for some of biggest names in the non-listed REIT business to cut their dividends to investors. As reported by Investment News last fall, several of the most prominent non-traded REITs did just that, including the Behringer Harvard REIT I.

If you were ill-advised about the risks of investing in unlisted REITs like the Behringer Harvard REIT, contact our securities fraud team. We will evaluate your situation to determine if you have a viable claim for recovery.