Following the recent economic downturn traditionally stable investments have seen vastly diminished returns on investments. As a result, many investors seeking a high return on a stable investment have turned to new products.
One such investment product that is increasingly being sold is non traded REITs, raising $73 billion in the last decade. Recently, however, these products have become the subject of increased scrutiny from the Financial Industry Regulatory Authority (FINRA) as well as the Securities and Exchange Commission, as some investors begin to report substantial REITs losses.
Problems Associated with Non-traded REITs
In addition to the lawsuits the Securities and Exchange Commission and the Financial Industry Regulatory Authority are currently looking into non-traded REITs.
Some of the biggest complaints against REITs include issues with unsuitability, illiquidity, high upfront fees, and uncertain valuations.
- Unsuitability: Due largely to a lack of liquidity, non-traded REITs are rarely suitable for short-tem investors according to FINRA. Short-term investors who were sold on these investment products may have been misled.
- Illiquidity: Meaning that they are not easy to sell, this feature is derived from their non exchange traded status and can result in significant losses to investors should the REIT lose value.
- Up Front Fees: According to FINRA, the fees associated with non-traded REITS are typically much higher than their traded counter parts causing investors to lose up to 15 percent of their principal before it is even invested.
- Uncertain Valuation: Since shares of non-traded REITs are not sold on any exchange, the value of a share can be hard to determine. Often sold as an answer to volatility, one SEC attorney noted in the New York Times that the SEC objects to “the suggestion that they are eliminating volatility simply because they don’t tell you what the value is,” adding “It’s not that it’s not volatile. It’s just that you don’t know.”
These aspects of non-traded REITs have led to concerns of non-traded REIT fraud.
Non-Traded REIT Losses
A number of investors in non traded REITs have been reporting losses. Due to the illiquidity of certain non traded REITs, investors who take losses have no choice but to stay with their investments. Some investors may not even know whether or not they are taking losses in their investments because of the issues with valuation.
Unsure About the Value of Your REITs?
Our securities attorneys have experience in handling non-traded REITs cases. Contact us for a free consultation by calling toll free (866) 981-4800 or filling out the form to the right.