Securities attorneys at Vernon Litigation Group continue to warn investors about buying into non-traded REITs as they watch those who bought shares in Behringer Harvard Short-Term Opportunity Fund I LP join the growing ranks of investors – many of them retirees — suffering REIT losses.
According to an Investment News article about Behringer Harvard losses, “At the end of December, investors in the Behringer Harvard Short-Term Opportunity Fund I LP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, down drastically from $6.48 a share Dec. 31, 2010.”
Some of those investors have begun to seek the help of regulators, contacting the Financial Industry Regulatory Authority, and stepping forward with questions for the SEC.
Most investors are sold non-traded real estate investment trusts with the promise of “steady income.” However, Vernon Litigation Group’s investigation of non-traded REITs has uncovered that the dividends received by investors every month are often made up of new investors’ money or from loans made to the REIT.
The investigation identified more than 10 non-traded REITs that have either severely restricted or suspended all distributions indefinitely. This means that many non-traded REIT investors are currently stuck in the investment, and their only way out is to sell their shares in an inefficient secondary market at a deep discount.
Investors considering non-traded REITs should be aware that FINRA Regulatory Notice 09-09 requires REITs to re-assess the value of their shares no later than 18 months after the conclusion of the offering. Consequently, many non-traded REITs are now re-assessing share value and notifying investors that their shares are worth far less than what they paid for them, despite the initial sales pitch of price stability. Quarterly reports reviewed by Vernon Litigation Group, reveal that this re-pricing has caused billions of dollars in investor losses. Despite the free-fall in value, many investors cannot sell their shares because the REIT has frozen redemptions.
Vernon Litigation Group continues to urge investors to seek second opinions from investment professionals before investing in these very complex non-traded REIT products. In October 2011, The Financial Industry Regulatory Association (FINRA), issued an investor alert cautioning investors on the dangers of non-traded REITs, including illiquidity risks, valuation methods, and excessive fees.