Were You Sold a Non-Traded REIT Without Being Told How Difficult It Could Be to Get Your Money Back? Or You May Not Be Able to Get It Back at All.
Non-traded real estate investment trusts, commonly called non-traded REITs, can be difficult, expensive, and highly illiquid investments.
Unlike publicly traded REITs, non-traded REITs are not listed on a national securities exchange. That means investors generally cannot simply sell their shares whenever they want their money back. The SEC specifically warns that non-traded REITs may involve significant liquidity restrictions, high fees, valuation difficulties, and conflicts of interest.
At Mazer Law Firm PC, we represent investors who were sold non-traded REITs and other complex investments without being given a fair explanation of the risks.
The Biggest Problem: You May Not Be Able to Sell
An investor may purchase a non-traded REIT believing that the investment can be sold or redeemed when the money is needed.
That may not be true.
Non-traded REITs generally do not have a public trading market. Redemption programs may be limited, suspended, changed, or discontinued. An investor who suddenly needs cash may discover that there is no readily available buyer for the shares.
This can be particularly serious for retirees and older investors who depend upon their investment accounts for living expenses, medical costs, or unexpected financial needs.
High Commissions and Expenses Can Reduce Your Investment
Non-traded REITs have historically involved substantial selling commissions and other upfront expenses.
The SEC has warned that fees associated with some non-traded REITs can significantly reduce the amount of an investor’s money that is actually placed into income-producing real estate.
When a financial professional receives significant compensation for recommending an investment, the investor should be told enough information to understand the costs and potential conflicts involved.
A Distribution Is Not Necessarily Investment Profit
Investors are sometimes attracted to non-traded REITs because of regular distributions.
But receiving a distribution does not necessarily mean that the investment is profitable.
The SEC has warned that some non-traded REIT distributions may be funded in part from offering proceeds or borrowed money rather than entirely from operating income. That can effectively mean that investors are receiving some of their own capital back.
An investor should understand both the amount of a distribution and where the money used to pay it is coming from.
What Is Your Non-Traded REIT Actually Worth?
With a publicly traded stock or REIT, an investor can generally look up a current market price.
That is not necessarily possible with a non-traded REIT.
Because the shares do not trade on an exchange, determining their true value may be difficult. Reported valuations may depend upon periodic appraisals rather than an active market where willing buyers and sellers establish a price.
An account statement showing a particular value does not necessarily mean an investor could sell the shares for that amount.
Was a Non-Traded REIT Appropriate for You?
The issue is not simply whether the investment later lost money.
The question is whether the recommendation was suitable and properly explained when the investment was sold.
A recommendation deserves closer examination when the investor:
- Was elderly or retired
- Needed liquidity or regular access to principal
- Wanted preservation of capital
- Had a conservative investment objective
- Did not understand that there was no public market for the shares
- Was told the investment was comparable to a safe real-estate investment
- Had a substantial percentage of available assets placed into illiquid investments
- Was not clearly told about commissions, fees, redemption restrictions, or valuation risks
Banks and Financial Advisors Can Recommend These Investments
Some investors purchase complex investments after being introduced to a broker or financial advisor through a bank or other trusted financial institution.
The fact that an investment was offered through a familiar bank or financial professional does not eliminate its risks.
The suitability of the recommendation must still be evaluated based upon the investor’s individual financial circumstances, investment objectives, age, liquidity needs, and risk tolerance.
You May Have a Claim Against the Brokerage Firm
Depending upon the facts, claims concerning a non-traded REIT may involve:
- Unsuitable investment recommendations
- Misrepresentations
- Failure to disclose material risks
- Failure to disclose illiquidity
- Failure to disclose commissions and expenses
- Breach of fiduciary duty
- Negligence
- Failure to supervise
- Concentration in illiquid investments
Many investor disputes with brokerage firms are handled through FINRA arbitration.
Get an Independent Review of Your Non-Traded REIT
If you have been told that you cannot redeem your shares, cannot access your money, or that your non-traded REIT is worth substantially less than expected, the circumstances surrounding the original recommendation should be reviewed.
Attorney Glenn Mazer spent more than 20 years in the financial-services industry before representing investors in securities disputes.
Mazer Law Firm PC can review your account statements, subscription documents, prospectus materials, transaction history, investment objectives, communications with the broker, and the circumstances surrounding the sale.
Speak Directly With Attorney Glenn Mazer
Call (205) 644-3744 for a free case evaluation.
Mazer Law Firm PC — For the Investor.