Why Non-Traded REITs May Not Be Worth What You Think They Are Worth

The recent ups and downs of the stock market and historically low interest rates are leading more and more investors to consider putting their money into non-traded Real Estate Investment Trusts (REITs). Whether you have already made such an investment or are considering investing in a non-traded REIT, it is important to understand how REITs are valued.

Potential Valuation Problems for Non-Traded REITs

Specifically, Cleveland investment fraud lawyers and others have two common valuation concerns about many non-traded REITs. Those concerns include:

• How Shares are Valued After Purchase. When an investor purchases a non-traded REIT at the offering price, two fees are typically deducted from the money invested. Those fees are for the stockbroker’s commission and up-front expenses. Together, the fees can account for a sizeable percentage of the investment. Yet, stockbrokers are not currently required to reflect the deduction of fees in their statements to investors. Instead, many brokerage statements reflect the value of the shares based on the par value at which the investor bought each share, and the commission and up-front expenses are not accounted for. This can give the investor a misleading idea of the current value of the non-traded REIT investment.

FINRA, recognizing the potential issue for investors, has proposed a rule to end this practice and require the per share estimated value to reflect the deduction of commissions and expenses.

• The Length of Time Stockbrokers Have to Establish a Market Value. A second problem with the valuation of non-traded REITs is the amount of time that brokers have to establish a market value. During the offering period, which can last three years or more, and the 18-month period after the offering period, brokers can continue to use the par value established at offering rather than the market value when reporting to investors. That means that, for a period of 4 -5 years after investment, an investor may not have a true sense of the current market value of the investment.

Contact a Cleveland Investment Fraud Attorney for Help

While the issues described above are not necessarily illegal, stockbrokers still have a responsibility to disclose the facts to you and make sure that you understand your investment and how it is valued. If your broker failed to do that, and you suffered financially, then you may be entitled to damages.

If this has happened to you, then please contact an experienced Ohio investment fraud attorney today for a free consultation. The experienced Cleveland stockbroker fraud attorneys at the Law Firm of Meyer Wilson can be reached at 614-224-6000 or toll-free at 1-866-827-6537.

Please read our FREE book Five Signs of Investment Fraud... And What to Do if it's Happened to You to learn more about your rights and potential recovery.