“Can you provide the names of some of the more common nontraded or illiquid REITs” is a question we frequently hear. Investors are beginning to heed the warnings of regulators and be suspicious of these investments. Many folks now steering clear of these products.
Before we name names, some explanation is necessary. REITs – short for Real Estate Investment Trusts – are a popular way of participating in large real estate projects. REITs allow ordinary investors to pool their money to purchase or build shopping centers, office buildings, apartments and warehouses. Congress made these investments even more attractive by amending the tax code to give these investments certain tax advantages.
So why all the warnings from regulators? Great question.
There are two types of REITs, traded and nontraded. Both have advantages and disadvantages. Nontraded REITs, however, are not suitable for many individual investors.
The non-traded REIT industry attracts billions of dollars of new investment each year. Generally, nontraded REITs are suitable only for sophisticated investors who don’t need immediate or medium term access to their funds. Frequently these investments must be held 7 years or longer before they can be cashed in. Publicly traded REITs, however, can be easily sold or traded just like stocks.
Although each type of REIT has its own constituency, unscrupulous stockbrokers frequently peddle the illiquid varieties to elderly and other unsuitable investors. Why? Because these investments carry very large commissions.
We see many customers purchase a REIT only to find out a year later that they can’t liquidate their investment. Sometimes they must hold it for a decade before they can cash out.
Illiquid REITs are ordinarily not suitable for individual investors for other reasons as well. In addition to the liquidity issues, the share values, commissions and fees are not very transparent. It seems that everyone makes money while the investor is forced to wait.
So what are the most popular illquid or nontraded REITs?
- Inland American Real Estate Trust
- Inland Western Real Estate Investment Trust
- Behringer Harvard REIT I
- Retail Properties of America
- Wells Real Estate Investment Trust II
- Dividend Capital Total Realty Trust
If you invested in one of these products, or one of the dozens of other nontraded REITs, and are unable to sell your investment or didn’t understand what you were buying, you may have a claim. Stockbrokers and investment advisors are required to fully understand their customer’s needs, only make suitable recommendations to their customers and must also properly explain the investment. When it comes to non-traded REITs, the SEC, Financial Industry Regulatory Authority and the State of Massachusetts require extra scrutiny.
Just because your statement says that your investment has increased in value doesn’t mean anything if you are unable to sell and cash out. In our opinion, something you can’t sell is worthless.
Think you may have a claim? Give us a call. We handle cases on a contingent or “success” fee basis. To learn whether you may have a case, give us a call. For more information, call John Chapman at 877-410-8172. Keep coming back to our informational website, REITlossrecovery.com for constantly updated information on REITs and other illiquid investments.