Non-traded REITS – “real estate investment trusts” - pose serious risks and prompt action from industry regulators
By Bradd MiloveNon-traded
real estate investmenttrusts, or REITs, have enjoyed increased popularity in recent years, thanks in large part to unstable markets and investors’ subsequent quest for income-producing investment opportunities. In fact, according to figures from the Investment Program Association, these non-traded REITs have raised nearly $10 billion this year alone. Now, however, as reported in the
New York Timesearlier this year, the risks involved with such investments and related regulatory action have many industry professionals second-guessing this superficially attractive strategy – and re-evaluating the dangers of
non-traded REITsfor unsuspecting clients and unscrupulous brokers alike.
REITs, also known as “real estate stocks,” generally allow investors to buy shares in a portfolio of real estate properties without incurring either the hassles of running a property or the financial burdens of property ownership. Some REITs also have the advantage of high liquidity and diversity, meaning that investors can sell their shares easily and efficiently while enjoying lower risk overall. Similar to these publicly traded REITs, non-traded REITs invest in real estate and, at least in theory, spread about 90% of the resultant taxable income amongst shareholders on an annual basis. However, in the case of non-traded REITs, FINRA regulators warn that early redemption is often limited and that investors may find themselves facing high, sometimes hidden fees in the form of commissions, leasing and management charges and property acquisition charges. According to recent issue coverage in
Registered Repmagazine, FINRA investor education vice president Gerri Walsh stated that “…Investors should be wary of sales pitches that might play up non-traded REITs’ high yields and stability, while glossing over the lack of liquidity, fees and other risks.” In the face of this and similar FINRA warnings, industry brokers are taking heed – and steering clear of non-traded REIT pitches with a high probability of misleading or confusing potential investors.
Stick to safe investment opportunities with advice from experienced fraud attorneysIn light of heightened FINRA scrutiny regarding non-traded REITs, several companies involved in sponsoring these investments have found themselves on the receiving end of complaints citing aggressive and misleading promotion of non-traded REITs to unsophisticated clients. Others have been cited for questionable practices of returning investors capital disguised as “income distributions” arising from property operations. And while not all promoters of such investments are necessarily attempting to con hapless investors into paying exorbitant fees, the fact remains that non-traded REITs have inspired enough concern and investor loss to keep novices on their guard. Indeed, FINRA has initiated regulatory actions and imposed severe sanctions on those firms that fail to properly investigate and disclose apparent tricks of the trade. As experienced
San Diego investment attorneys, we at the Law Offices of Miller and Milove recommend that individuals stay away from these and other risky, fee-laden investments – and that anyone who has been mislead in the purchase of non-traded REIT shares make contact with a qualified investment fraud lawyer to pursue financial recovery. To learn more about FINRA warnings, safe real estate investments and legal advice, visit us online: