If you or someone you love has lost money in a non-traded real estate investment trust (REIT), you may have grounds to pursue a claim to recover your losses.
Meyer Wilson Werning is a nationally recognized law firm dedicated to helping wronged investors recover losses caused by investment fraud and misconduct. Our attorneys have decades of experience representing clients in claims involving REITs against brokerage firms and investment advisers nationwide.
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What is a Non-Traded REIT?
A real estate investment trust, or REIT, is a corporation, trust, or association that owns and manages real estate. REITs pool the capital of investors to purchase a portfolio of properties – from office buildings and shopping centers to hotels and apartments – which the typical investor might not otherwise be able to purchase individually.
Unlike public REITs traded on an exchange, non-traded REITs don’t have a market and are not traded, which means investors have to wait for the underlying real estate to be sold to get their money back.
This lack of liquidity creates a level of risk that is not suitable for most investors.
Non-Traded REITs Are Poor Investments for Most Investors
FINRA has warned that non-traded REITs are not usually suitable for the average investor – especially senior investors. According to FINRA:
“Non-traded REITs are rarely, if ever, suitable for short-term investors and even long-term investors must be willing to bear the risks of illiquidity.”
Promoters of non-traded REITs say they offer high yields from rental income and that after 7-10 years, property can be sold and investors can get their money back – or even more if the property is sold for profit. Unfortunately, that isn’t always the case.
Some of the reasons why non-traded REITs are a risky investment option:
- High fees. To buy non-traded REITs, you have to pay commissions and fees that often total 15% of your investment and are difficult to identify. These high fees erode the total return.
- Lack of liquidity. Non-traded REITs can be illiquid for 7-10 years or more. Investors have very few options should they need to liquidate their positions or seek an early redemption of shares.
- Unclear distributions. Distributions are not guaranteed. They may also be subsidized heavily by borrowed funds and include a return of principal, rather than being solely from earnings.
- Valuation problems. Non-traded REIT offerings last several years during which broker-dealers reflect an estimated per-share price (usually the public offering price) for long periods of time after initial purchase. This can make it difficult to accurately value shares and expose investors to losses when per-share estimated values are repriced at substantially less than offering price.
- Limited diversification: Non-traded REITs lack diversification, making them vulnerable to risks associated with the market as a whole, the real estate market, and the specific subset of real estate on which a non-traded REIT concentrates.
Watch our video: The Dangers of Non-Traded REITs.
Our lawyers are nationwide leaders in investment fraud cases.
Investor Lawsuits for Non-Traded REIT Fraud & Misconduct
Brokers and investment advisers can rarely justify recommendations to purchase non-traded REITs. Even if a client desires diversification into the real estate sector, client interests are far better served by investing in low cost liquid funds managed by individuals with expertise and incentives to construct diversified portfolios with real estate investments.
Many brokers and advisers who recommend non-traded REITs to retail investors usually do so because of the large selling commissions they earn. Sometimes, brokers and advisers may engage in fraud or misconduct when recommending or selling non-traded REITs to clients, such as misrepresenting the features of risks of the product
Potential claims involving non-traded REITs can include:
- Unsuitable recommendations
- Negligence / failure to conduct reasonable diligence
- Misrepresenting or inadequately presenting risks
- Fraud / false information
- Overemphasizing distributions without explaining some funds are returning an investor’s principal
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Non-traded REITs are complicated and risky investments, even though sales pitches can mislead consumers into thinking they are safer than they really are. In many cases, the only way to recover losses is to pursue a claim against the brokerage firm or adviser that sold it to you
If you purchased a non-traded REIT at the recommendation of a broker or adviser, contact us to speak with an investment loss attorney during a FREE consultation. Meyer Wilson Werning has represented over 1,000 investors nationwide in stockbroker mediation, arbitration, and litigation, and may be able to help you.
Recovering Losses Caused by Investment Misconduct.