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The Problem with Non-traded REITs
Lately, there has been a lot of buzz amongst securities arbitration lawyers about non-traded REITs. Investors who have suffered losses as a result of these investments have been encouraged to come forward to attempt to recover their losses through FINRA arbitration. But what exactly is the problem with these investments?
Generally, a problem with these investments arises when a financial advisor fails to adequately disclose to the customer the risks and illiquidity of the investment. Often, the motivation for the broker/adviser’s failure to disclose when recommending the product is the high commission he or she will earn on the investment.
Valuation problems of these investments are another major issue with non-traded REITs, according to investment fraud lawyers. Currently, FINRA rules only mandate that the sponsors of the investments establish an estimated per-share valuation no longer than 18 months after the investment stops raising investor funds. This is an issue because fund raising can, and often does, last for years. As a result, the per-share valuation can go for years without being updated. Furthermore, there is an obvious conflict of interest when it is the non-traded REIT’s sponsor that establishes the valuation.
According to Investment News, as regulators prepare to solidify rules on estimated share value creation for REITs, there is a deep divide within the non-traded REIT industry about valuations. Specifically, the issue revolves around whether an independent third party should be used to conduct appraisals. Many are arguing that complete transparency — regarding commissions generated, pricing and secondary market prices — is needed by the non-traded REIT industry.
Some of the non-traded REITs being investigated by the securities arbitration lawyers at CJ Gray are KBS REIT, Cornerstone Healthcare REIT, Inland Western and Behringer Harvard REIT. If you have suffered losses as a result of your investment a non-traded REIT, find out more about your legal rights and options by contacting an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.