Another nontraded REIT has apparently plunged in value. Over the last year, the value of CNL Lifestyle Properties REIT has plunged 24% in value. While real estate values continue to climb, this REIT has been dropping like a boat anchor. It is the second major drop in two years.
Because CNL Lifestyle is a nontraded REIT, it’s hard to be entirely sure what the shares are worth. It is possible that the true value is even less.
Nontraded REITs pose significant investment risks. They are generally not suitable for individual investors and especially those who are elderly, retired or need access to their money. Sometimes shares must be held for years before there is a liquidity event meaning the date investors can sell their shares on the open market. As long as the REIT remains non-traded, however, it is impossible to precisely know its value.
Many nontraded REITs artificially peg their value at $10 per share. Recent reforms have caused many REITs to properly value their holdings and shares. According to InvestmentNews, a popular industry publication, one investment professional said, “We realize that real estate valuations can be very subjective and are assumptively driven, but this makes us question the usefulness and reliability of the appraised value of this asset for performance, reporting and explaining results to clients.”
Another investment adviser was not as charitable; “Glad I only have 1 client in it. Never again with these things… there is never any accountability for those that managed the thing into the ground.”
The combined difficulties in valuation and inability to sell make most nontraded REITs horrible investments for many clients.
Stockbrokers, investment advisers and the firms that employ them are responsible for the recommendations they make to clients. Know your customer and suitability rules say that brokers must fully explain the risks these investments carry including the risk that you may not be able to sell for a decade or more.
Luckily, many suitability and bad recommendation cases can be handled on a contingent fee basis meaning no legal fees until the case is settled. Depending on what your broker told you, there might be recourse for shareholders of CNL Lifestyle Properties.
About the author. Brian Mahany is a lawyer and author of Due Diligence. He frequently contributes to REITlossrecovery.com