Category Archives: Wells Timberland REIT

Non-traded real estate investments (REITs) have caused the undoing of several high-profile firms and broker/dealers in recent years, especially following the collapse of the commercial real estate market and the credit crisis of 2008. Now, one prominent non-traded REIT player – Wells Real Estate Funds – is at least temporarily saying goodbye to the non-traded-REIT industry.

As reported Jan. 15 by Investment News, Leo Wells announced his departure in a letter dated Jan. 11 to broker/dealer executives. In it, Wells said his firm would not register any new investment products at this time but may in the future. The firm will continue to serve existing clients in its line-up of real estate investment trusts and private real estate funds.

Wells attributes his pullback to a lack of clarity surrounding the regulation of REITs.

“As most of you are aware, [the Financial Industry Regulatory Authority] has been working toward producing new transparency guidelines for alternative investments, which they expect to become effective mid-2014,” Wells said in the letter. “As a result, I do not believe it is prudent to register a new product that may or may not meet the new regulatory requirements.”

According to Wells, the Wells Real Estate Investment Trust II is moving to become an independent company early this year and the Wells Core Office Income REIT will close to new investments in June. The Wells Timberland REIT also is looking toward “its appropriate exit strategy.”

The Investment News article says Wells Real Estate Funds does not intend to close its wholesaling broker/dealer, Wells Investment Securities Inc.

Last year, FINRA imposed a $300,000 fine against Wells Investment Securities over misleading marketing tied to Wells Timberland REIT. In reaching the settlement, Wells Investment Securities neither admitted nor denied the charges.

Wells Real Estate Funds is one of the biggest sponsors of investments in the non-traded REIT industry, with $11 billion in assets and 300,000 investors.  As the Investment News article points out, the man behind the company is known as an outspoken and colorful figure in the non-traded REIT world.  In October 2003, FINRA’s precursor, NASD, sanctioned Wells Investment Securities for improperly rewarding broker/dealer reps who sold the firm’s REITs. Among those rewards: High-end entertainment parties and lavish dinners that included one at a Civil War fort complete with costumed Civil War heroes, fireworks, fife and drum players, skydivers and a cannon re-enactment.

The regulator also censured Wells and suspended him from acting in a principal capacity for one year.

Another non-traded REIT has landed in hot water with regulators. The Financial Industry Regulatory Authority (FINRA) imposed a $300,000 fine against Wells Investment Securities over misleading marketing tied to Wells Timberland REIT.

In reaching the settlement, Wells Investment Securities neither admitted nor denied the charges.

According to FINRA, communications from Wells Securities about Wells Timberland contained misleading statements regarding its portfolio diversification, as well as its ability to make distributions and redemptions.

“By approving and distributing marketing materials with ambiguous and equivocal statements, Wells misled investors into thinking Wells Timberland was a REIT at a time when it was not a REIT,” said FINRA executive vice president and chief of enforcement Brad Bennett in a statement.

FINRA also found that Wells failed to have proper supervisory procedures in place to ensure that sensitive customer and proprietary information stored on laptops was adequately safeguarded.

As reported Nov. 22 by Investment News, this is not the first time that Wells Securities has had a run-in with regulators over REITs. In October 2003, FINRA’s precursor, NASD, sanctioned Wells Investment Securities for improperly rewarding broker/dealer representatives who sold the company’s REITs. Those rewards included lavish entertainment and travel perquisites. FINRA also censured Leo Wells, founder and chairman of Wells Real Estate Funds, suspending him from acting in a principal capacity for one year.

Wells Real Estate Funds is one of the largest sponsors of investments in the non-traded REIT industry, with $11 billion in assets and 250,000 investors.