Non-listed or non-traded real estate investment trusts (REITS) are big business. According to research by Blue Vault Partners, LLC, they are on track to raise $7 billion in 2010, a 17% increase over 2009. This is a bonanza for brokers and firms that push non-traded REITS because of the excessive fees of up to 15% in addition to continuing management fees. Unfortunately, this can be a financial disaster for investors who have been misled about the risks involved, including the suspension of dividends and illiquidity. The uniqueness of non-listed or non-traded REITS is that they are public but the shares do not trade on any of the stock exchanges. To further complicate matters for unsuspecting investors, these non-traded REITS often come with little or no independent analysis of performance and only vague references in the prospectus regarding exit strategies.
The Inland Group out of Oak Brook, IL is the largest sponsor of non-traded REITS in the United States. Inland Western Real Estate Investment Trust and its sister, Inland American Real Estate Investment Trust have faced cash flow issues dating back to 2009. In March 2009, Inland Western slashed its dividend by 70% and had defaulted on mortgage loans totaling $54.9 million by May 2009. Inland American mirrored the financial problems facing Inland Western. Recently, on September 21, 2010, Inland American reset the value of its common shares from $10 in 2005 to $8.03. In that 8-K filing with the Securities and Exchange Commission (SEC), Inland said that it “gives no assurance that a stockholder would be able to resell his or her shares at the new estimated value.” The Financial Industry Regulatory Authority (FINRA) initiated an inquiry in March 2009 related to non-traded REITS requiring firms to disclose information about who they were selling the products to and what marketing materials had been used.
In addition to Inland Western and Inland American, there have been many other non-traded REITS that have resulted in massive losses to investors. Among them is the Behringer Harvard REIT 1, which reset its value to $4.25 in the summer of 2010. Others that have reset the value of its shares or limited and suspended redemption of shares include KBS REIT, Grubb & Ellis Apartment REIT, Wells REIT II, Wells Timberland REIT, Cole Credit Property Trust II and Hines Real Estate Trust. Investors who thought they were making safe and conservative investments are now faced with holding nothing but worthless shares.
If you have suffered losses from investing in non-traded REITS, please contact our securities law firm for a confidential, no obligation consultation at 1-800-259-9010.