Although billions of dollars continue to pour into Real Estate Investment Trusts – REITs – many are quite troubled. Recently we posted two stories about Strategic Realty Trust. That REIT lost 29% of its value seemingly overnight. If you thought that was bad, 450 investors in American Spectrum REIT 1 just learned that their shares might have declined in value by 87.5%!
Originally sold at $10 per share, the REIT has not paid a divident since 2009 and has not even bothered to hold a shareholder’s meeting since 2010.
What’s going on with all these REIT losses? Great question. The two most recent victims have been illiquid variations of REITs.
If that sounds a bit confusing, lets take a moment to explain. Many REITs are publicly traded. You can buy and sell them on the open market much like a stock. It’s easy to determine value because there is usually a ready market for the shares. Because they trade openly, valuation is easier as well as liquidity.
Some REITs, such as nontraded and private REITs, are illiquid. There is no secondary market and you may have to hold your investment for a decade before being allowed to sell. That makes them lousy investments for people who need ready access to their money. Unfortunately, some brokers fail to warn or properly educate their customers. Strategic Realty Trust is a nontraded REIT.
A close relative is the private REIT. These investments are limited to how many people can participate and have few disclosures. That makes them potentially the riskiest of all REITs. No ready secondary market, limited ability to liquidate, high commissions, often high fees, and few disclosures.
What happens when you mix all those bad qualities together? Often you get a result like American Spectrum REIT 1, an investment that pays no dividends and loses almost 90% of its value.
The silver lining is that stockbrokers and their employers have a legal duty to understand your investment objectives, to only make suitable recommendations and to properly explain the natue of the investment.
If you lost money in American Spectrum REIT 1 (it was originally called Evergreen Realty REIT), give us a call. Our team of REIT loss recovery lawyers have helped many folks get back their money from failed investments. For more information, contact John Chapman at ChapmanLaw LLC. John can be reached at 877-410-8172.