Wells Real Estate Funds, a major nontraded REIT seller, has announced that shares of its Wells REIT II, which investors purchased at a share price of $10, are actually worth an estimated $7.47 per share (“Share value of popular Wells REIT sinks,” InvestmentNews). Clients will see the reduction in the estimated account value on their statements next month. In addition, after raising $5.9 billion from investors, the Wells REIT II only invested $4.7 of the proceeds in real estate, the rest going to commissions, fees and other expenses. In other words, right off the bat, the Wells REIT II was worth about $7.97 per share, rather than $10.
The announcement by Wells comes after sharp criticism by regulators and others about non-traded REITs misleading investors by reporting the share value at cost on account statements, despite a terrible real estate market that has undoubtedly lowered the actual value of the REITs’ real estate holdings.
The Financial Industry Regulatory Authority (FINRA) issued a rule proposal in September that would drastically change the way nontraded REITs are valued on client account statements. It would require that “all per-share estimated values, including those that are based on the offering price, reflect a deduction of all organization and offering expenses [net value].”
According to its filings with the SEC, the real estate assets were worth $10.13 per share, but its debt was $2.65 per share, with the difference being the new estimated value per share. Commercial real estate values have declined significantly, but the Wells REIT II fund reported to the SEC that its real estate assets declined 8.1%.
In a tersely worded letter to shareholders, the Well REIT II’s board said that it “chose to base the new estimated value per share for Wells REIT II solely on the estimated net asset value ? meaning the real estate, debt and other assets and liabilities on the REIT II balance sheet ? without modification. That’s it. Period.”
Investor attorney J. Boyd Page of Page Perry in Atlanta said, “Investors who paid $10 a share for a REIT that was worth significantly less than that from the outset have been egregiously misled in my opinion. Fortunately, they may have compelling claims to recover those losses.”
Page Perry is an Atlanta-based law firm with over 150 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving non-traded REITs. For further information, please contact us.