Leo Wells, head of Wells Real Estate Funds, the biggest player in the nontraded REIT industry, announced in January 2013 that they will not be selling any new nontraded REIT products for the current time.
Wells cites a “lack of clarity” from the Financial Industry Regulatory Authority (FINRA) on the regulation of these illiquid investments . Apparently his decision was inspired by FINRA Notice to Members 09-09 which establishes rules related to establishing values for these investments that do not trade on a national exchange and addresses requirements related to the expected dividend distributions of the products.
Of the $11 billion raised by Wells for real estate projects since 1984, most has been raised through nontraded REITs. In the past few years regulators have been taking a hard look at the product’s fees (which are high compared to conventional investments) , valuation methods and how the value appears on client statements. Prior to NTM 09-09, most companies carried the value at the original purchase price. Since the investments are not traded on a national exchange there is no traditional way to determine fair market value.
Wells Timberland Reit was launched in 2006 priced at $10 per share. The promised cash distributions have not been made and most company redemption plans are cancelled. While the company has provided an estimated value of $6.65 per share, private secondary market makers, the only place they can be sold, is paying only 60-70% of the estimated value.
If you are a retiree trying to live on the distributions you expected to receive from a nontraded REIT, you already know….”Estimated value does not equal fair market value”. See Retirees Hurt.
I have written more on the secondary market for non traded REITs and Wells’ problems with FINRA over misleading marketing materials utilized in connection with the sale of Timberland REIT here.
Other companies like Inland, Cornerstone, KBS, Behringer Harvard, Retail Properties of America, Hines, Dividend Capital and CNL, have suffered similar problems with values, ceased distributions and illiquidity.
If you were misled as to the nature of a nontraded REIT you purchased, you have valuable legal rights and may be able to recover all or a portion of those losses. Contact us for a no charge consultation.
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