Short of working until death, people need alternate sources of income to substitute for wage income. One of the most popular, and widely-recognized, methods of increasing one’s income is investing in real estate. In recent years, public and private lenders have offered borrowers historically low interest rates, which has led investors to seek products offering attractive yields. One such product is the publicly registered non-exchange traded real estate investment trust (REIT) or “non-traded REIT.” Non-traded REITs, which are not traded on a national securities exchange, carry with them many risks, including:
- They are generally illiquid, often for periods of eight years or more;
- Early redemption of shares is limited;
- Fees charged by investment advisors/brokers can be high and consume a large portion of an investor’s total return; and
- Distribution payments to investors can be heavily subsidized by borrowed funds and include a return of investor principal — a feature not typically associated with investments in stocks issued by large corporations that trade on national exchanges.
Another type of REIT that does not trade on an exchange is the private REIT, or private-placement REIT. Private REITs carry significant risk to investors, starting with the fact that they are generally exempt from Securities Act registration. Because private REITs are not required to provide investors the same kinds of disclosure documents that registered REITS are, it can be extremely difficult for investors to foresee some of the pitfalls that might be waiting for them in these investment products. Anyone looking to invest in private REITs should conduct a fair amount of due diligence before embarking on such an investment.
Silver Law Group has significant experience representing investors in non-traded REITs who have fallen victim to a host of abuses levied upon them by REIT managers. Whether through excessive fees or wrongfully withheld distributions or preferential distributions made to REIT-insiders, investors have come to us seeking assistance in recovering the funds they believe are rightfully theirs or in punishing those who have wrongfully abused their financial well-being. If you invested in a non-traded REIT and have questions or concerns about your investment, we can help determine whether you have a viable claim to recover your investment losses.
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