Securities Lawyers Blog
The attorneys of Gana Weinstein LLP have reported on the many failings of the non-traded real estate investment trust (Non-Traded REIT) industry for years. One of the common myths is that these products (such as Behringer Harvard, Cornerstone, Inland and KBS) only failed because of the financial crisis and the decline in the real estate industry. The truth is these expensive and inefficient products never make sense to invest in.
Proving this to be the case is American Finance Trust Inc., (AFIN) which was sold in 2013 by Schorsch affiliated entities. When American Finance recently went public approximately $1 billion of the company’s claimed value was wiped out exposing investors to massive losses that had long been hidden by the complex and opague ways the Non-Traded REIT industry operates.
The company itself published its own “estimated per share” net asset value of $23.56, only slightly less than the $25 per share that investors spent to acquire it just the month before. When AFIN went public it traded as low as $14.80 with a market capitalization of about $1.6 billion – a 40% loss.
As regulators continue to turn their attention to this product and the industry works to lower commissions that brokers earn on this product the truth is now starting to come out. Brokers have been essentially bribed with 7% commissions for over a decade to sell worthless and inferior products. Now that commissions have declined sales have plummeted as the pressure to sell Non-Traded REITs dissipates.
Our firm often handles cases involving direct participation products, Non-Traded REITs, oil and gas offerings, equipment leasing products, and other alternative investments. These products are almost always unsuitable for investors. In addition, the brokers who sell them are paid additional commission in order to hype inferior quality investments which provides a perverse incentives by brokers to create an artificial market for products that no honest advisor would sell.
According to studies, non-traded REITs have historically have underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded REITs provide paltry investment returns considering the risk an investor takes. Alternative investment products like oil and gas partnerships, REITs, and equipment leasing programs are rarely, if ever, appropriate for investors due to their high costs, illiquidity, high risks, and huge redemption charges of the products, if they can be redeemed at all. Investors often fail to understand that they have lost money until many years after agreeing to the investment.
Unfortunately, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. These products have become so popular among brokers without providing any benefit to investors that many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs. Many states impose these limitations because its understood that that they provide virtually no benefit to investors in relationship to their risks.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.