Category Archives: Non-traded REITs

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.

Arbitration claims connected to Medical Capital Holdings and Provident Royalties and other risky deals – including those involving non-traded REITs – could grow much bigger in number following a recent regulatory decision by the Securities and Exchange Commission (SEC).

The new regulation gives investors the option of choosing an all-public arbitration panel to have their disputes with brokers reviewed. In other words, investors can select a panel composed entirely of individuals who have no connection to the securities industry. Typically, the three-person panel is made up of two public arbitrators and one industry professional.

As reported Feb. 6 by Investment News, the SEC’s ruling comes on the heels of a pilot program by the Financial Industry Regulatory Authority (FINRA) that allowed certain investors the choice of substituting an industry arbitrator with a public panelist.

The rule change does not affect disputes among brokerage firms or between brokers and their firms.

“This is a tremendous step in the right direction,” said Peter Mougey, president of the Public Investors Arbitration Bar Association, which represents plaintiff’s attorneys, in the Investment News article.

If you have a concern about your investments with your independent broker/dealer, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Their names may be different – Cornerstone Core Property, Inland American, Inland Western and Behringer Harvard REIT I – but these non-traded real estate investment trusts (REITs) have produced similar financial woes for their investors.

Non-traded REITs can be tricky investments. The products do not trade on national stock exchanges. Redemptions in them are limited at best; most non-traded REITs entail a lengthy holding period – in some instances, up to eight years.

The biggest fault concerning non-traded REITs is one of transparency. Non-traded REITs generally provide no independent source of performance data for investors. Instead, investors must rely on the broker/dealer responsible for pitching and selling the the investment.

And therein lies the problem.

In recent months, numerous complaints have come to light concerning non-traded REITs and, specifically, the broker/dealers behind the deals. Investors allege that they were never given complete details about their investment, as well as the many risks associated with non-traded REITs in general.

The lack of disclosure may have something to do with the high commissions and fees that broker/dealers take in from sales of non-traded REIT shares. In many cases, these fees are 15% or more.

This year, many investors in non-traded REITs have had to face a harsh reality. Instead of getting the stability, liquidity and a reliable source of income they were initially promised by their broker/dealers, they received dividend cuts and elimination of shareholder redemption programs.

Earlier this year, the Financial Industry Regulatory Authority (FINRA) began to take a keen interest in non-traded REITs by conducting a sweep of the promotion practices and sales of broker/dealers associated with the products.

Maddox Hargett & Caruso currently is investigating sales of non-traded REITs, including Cornerstone, Inland American, Inland Western and Behringer Harvard. If you’ve suffered financial losses of $100,000 or more in a non-traded REIT and believe those losses are the result of inadequate information on the part of your broker/dealer, please Contact Us.

Inland American Real Estate Trust has reset the value of its common shares to $8.03. For investors, it isn’t good news; the price is down from the $10 that the shares sold for when the non-traded REIT was first launched in 2005.

Inland announced the reset on Sept. 21 in an 8-K filing with the Securities and Exchange Commission (SEC). Inland also stated in the filing that it “gives no assurance that a stockholder would be able to resell his or her shares at the new estimated value.”

“We believe the current downturn in the economy has depressed the value of our assets and hence the estimated value of our shares,” Inland said. “The value of our shares will likely change over time and will be influenced by changes to the value of our individual assets as well as changes and developments in the real estate and capital markets.”

Other non-traded have followed Inland lead in resetting their values. Among them: Behringer Harvard REIT I, which reset its shares to $4.25 earlier this summer, and KBS REIT, which reset its value to $7.17 in late 2009.

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.

Non-traded real estate investment trusts (REITs) are big business. According to research from Blue Vault Partners LLC, non-traded REITs are on track to raise $7 billion in 2010, a 17% increase over 2009.

For brokers and firms pushing non-traded REITs, that’s good news. They stand to make huge commissions from sales of non-traded REITs. Investors, however, often come out on the losing end of non-traded REIT deals. That’s because non-traded REITs lack transparency, and they are not even considered liquid investments.

Moreover, investors in non-traded REITs often fail to realize that redemptions can be suspended at any time. The same goes for dividends, which could be reduced or suspended. The end result? Investors’ money in non-traded REITs is tied up, oftentimes for years.

As reported by REIT Wrecks, a Website devoted to the REIT sector, a number of non-traded REIT programs have eliminated or severely limited their share repurchase programs. Among these are some non-traded REITs that continue to offer their shares to the public. As of the first quarter of 2010, this group included Behringer Harvard Multi-family REIT I, Grubb & Ellis Apartment REIT, Wells REIT II, and Wells Timberland REIT.

Says REIT Wrecks: “Based on their Q3 earnings, the two apartment REITs are in heaps of trouble, while Wells Timberland REIT is playing a game of beat the clock with its lenders using money from new shareholders. Avoid these like the plague.”

Maddox Hargett & Caruso currently is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning investments in a non-traded REIT, please contact us.

Non-traded REITs such as Behringer Harvard REIT I, Behringer Harvard Opportunity, Wells Real Estate Investment Trust II, Inland America Real Estate Trust and Inland Western Retail Real Estate Trust may become more transparent thanks to a new platform under development by the Depository Trust and Clearing Corporation (DTCC).

As reported June 6 by Investment News, the intent of the platform it to provide standards, centralize data and automate transactions for alternative investments like private placements, non-traded real estate investment trusts, limited partnerships and hedge funds. Through the new platform, the DTCC will operate as a go-between among firms that create alternative investments and the broker/dealers and companies selling them.

The platform – called the Alternative Investment Product (AIP) – currently is being used by Pershing LLC. The Charles Schwab Corp. is testing it, according to the Investment News story, and National Financial Services LLC, a clearing unit of Fidelity Investments, plans to have it operating by 2011.

In the interim, about 15 DTCC- affiliated sponsors of alternative investment products are testing the platform.

Alternative investments like non-traded REITs and private placements have come under fire by regulators in recent months for their lack of transparency. In July 2009, the Securities and Exchange Commission (SEC) filed fraud charges against the Tustin, California, lender Medical Capital Holdings in connection to private placements that the company issued to more than 20,000 investors nationwide.

Non-traded REITs also faced intense scrutiny lately. Last year, some of the most prominent non-traded REITs, including Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust and Piedmont Office Realty Trust slashed dividends to investors and/or shut down their redemption programs.

The AIP is intended to standardize the way the alternative investment industry communicates information about these types of investments, providing more new clarity.

“The challenge for many alternative investments is that they’re non-standardized,” said one anonymous industry executive in the June 6 Investment News story. “They’re not always priced and valued on a regular basis. This is an investor need, a broker/dealer need.”

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.

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.

Sales of Inland American REITs have produced a firestorm of financial headaches for investors, many of whom were sold on the products based on inappropriate recommendations from broker/dealers. Investments such as the Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust are non-traded, or unlisted, REITs – financial products that have come under increasingly scrutiny lately because of the potential risks they may carry.

Non-traded REITs are not listed on a stock exchange, and investor redemptions are usually limited to a specified time frame. Most important, non-traded REITs can be pricey to get into, with fees as high as 15%.

In conversations with several investors, Maddox Hargett & Caruso has learned that many individuals who invested in non-traded REITs, including the Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust, were ill-informed by their broker/dealer of the high fees, illiquidity and other risks tied to the products. If you suffered investment losses in either of these REITs or another non-traded REIT, contact us to tell your story. 

Investments in Inland American REITs have backfired for investors throughout the country. In many instances, these products – including the Inland American Real Estate Trust and Inland Western Retail Real Estate Trust – were pitched by broker/dealers as a low-risk, conservative investment. In reality, however, investors were putting their money into non-traded REITs, and the qualities that define these REITs are anything but conservative.

Non-traded REITs (or unlisted REITs) are not listed on a stock exchange. Redemptions in them are limited at best. Perhaps the biggest downside to non-traded REITs is their fees, which in some cases can be upwards of 15%.

Many investors were woefully unaware of the high fees associated with their non-traded REITs – until it was too late. And for some broker/dealers, that’s just what they had in mind when they pitched these products to their conservative clients.

Maddox Hargett & Caruso is investigating a number of non-traded REITs, including the Inland American Real Estate Trust and Inland Western Retail Real Estate Trust. If you suffered investment losses in either of these REITs or another non-traded REIT, contact us to tell your story. A member of our securities fraud team will work with you to determine if some or all of your losses can be recovered.