Research Firm: ‘Avoid Nontraded REITs’

 

Green Street Advisors ? the “industry leader in REITs research” ?recommends against investing in nontraded REITs. Investors who want exposure to the real estate market would be better off investing in publicly traded REITs, according to a report issued by the firm. (“Nontraded REITs should be a nonstarter for clients: Green Street,” InvestmentNews).

Investor losses connected with improper due diligence and overvaluation, high fees, and misleading dividend payouts, have given the industry “a black eye” and led to lawsuits by regulators and investors.

The claimed share-price stability, which is a major attraction to investors, is an illusion, according to the article, citing Green Street.

“Since the shares don’t trade, the share price investors see on their statements every quarter doesn’t fluctuate,” Green Street was quoted as saying. Statements sent to customers reported the value of the REIT as the purchase price even though the underlying real estate had declined in value.

In addition, “egregious” upfront costs of 7% to 10% further eroded returns on nontraded REITs. Dividends were often paid from loans or investors’ capital.
In short, nontraded REITs are another example of alternative investments that investors should avoid.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.