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.