If you follow this blog regularly, you probably know two things. Nontraded REITs (Real Estate Investment Trusts) are non liquid meaning they can’t be readily sold. Buy one and you might be stuck with it for a decade or longer.
The other take home has been the difficulty in figuring out what they are worth. Although your monthly statement might show their worth at $10.00 per share (the industry norm), the actual value might be far less.
As to the second point, think about going to a department store and learning that your favorite cologne is marked down 80% to $100 per bottle. Did it ever sell for full retail? Probably not. The same can be said for many mature nontraded REITs. Your statement might claim each share is worth $10.00 but find someone really willing to pay that price.
This month, CNL Lifestyle Properties REIT says it is trying to have a liquidity event. For those new to non traded REITs, that means it is trying to sell or be listed.
CNL Lifestyle has $2.7 billion in assets according to filings with the SEC. Launched in 2003, the REIT initially sold for $10 per share and invested in resort properties such as golf courses and ski resorts. Investors have waited since 2003 for a liquidity event.
How much per share can be realized at such an event is questionable. Last year the true value of the REIT was estimated to be $6.85. The company says it is seeking “attractive exit alternatives” for its portfolio.
Nontraded REITs can be a good investment for institutional investors willing to hold on a decade or more. People that need access to their funds should avoid them.
Because they can also be quite volatile, individual investors should really understand the true risks of many nontraded REITs. They certainly aren’t suitable for many investors. Unfortunately, in our experience, some stockbrokers do a terrible job of educating clients and explaining that they may be stuck for many years before they can liquidate their shares.
Why would a stockbroker recommend these investments? Money. Non traded REITs typically carry much higher commissions and fees than more traditional investments.
If you have purchased a private or nontraded REIT, or any other type of illquid investment, give us a call. We can help you recover your hard earned money. Brokerage firms are responsible for the conduct and sales practices of their brokers. Even if your broker is no longer working, the firm that employed him or her may still be liable for your losses.