Cetera Stops Sales Of REITs Amid COVID-19 Pandemic

Cetera Financial Group, comprised of Cetera Advisors, Cetera Advisor Networks, First Allied Securities, and Summit Brokerage Services, recently announced that it is halting sales of non-traded real estate investment trusts (REITs) and interval funds, citing the likely inaccuracy of real estate valuations leading up to the COVID-19 pandemic. Cetera Financial Group has approximately 8,000 registered representatives operating across the country who are subject to this policy.

The firm, along with other firms including LPL Financial and Advisor Group, is “pausing” sales of these products to customers while the market adjusts to the effects of coronavirus. This comes after sales of non-traded REITs topped $2.4 billion in January 2020, which was the highest REIT fundraising month in history.

It is likely that investors currently invested in non-traded REITs will experience a sharp decline in the value of their principal investment (“net asset value” or NAV) as the assets held by various REITs react to nationwide closures, decreased consumer demand, stock market volatility, and a decline in the real estate industry. Furthermore, many REITs have announced suspension or alteration of dividends or distributions to shareholders due to current economic conditions. Finally, many of these REITs have suspended share redemption and repurchase programs, leaving investors with no way out as the value of their investment declines.

Customer complaints against brokerage firms for the sale of REITs have grown over the years as the sale of these products have grown in popularity. In many cases, customers allege that the steep internal costs and commissions were not properly relayed to the investor, little or no reason existed to sell the investor an illiquid product for which the investor was not receiving fair compensation when suitable listed or traded REIT exist and due diligence was lacking into the quality of the investment and/or the management of the REIT.

Real Estate Investment Trusts (REITs)

REITs are modeled after mutual funds in the sense that a company owns or finances income-producing real estate and typically offer investors a revenue stream, diversification, and long-term capital appreciation. They are often advertised as sound retirement vehicles because they provide high dividend yields.

However, these products have been the subject of many customer complaints. In recent years, the Securities and Exchange Commission (SEC) and FINRA have issued warnings and guidance on REITs, pointing to unreasonably and unfairly high commissions and fees, lack of transparency, and lack of liquidity. Investors in REITs can end up losing significant value and being stuck in the investment because REITs are not publicly traded on an exchange.

Cetera Has Historically Sold a High Volume of REITs to Customers

News of Cetera’s suspension of REIT sales is especially surprising given Cetera’s history of selling a substantial amount of REITs to its customers. Among the REITs commonly sold by Cetera are:

American Realty Capital Trust, Inc.
New York REIT, Inc. (formerly New York Recovery REIT, Inc.)
American Realty Capital Healthcare Trust, Inc.
American Realty Capital Trust
Phillips Edison Grocery Center REIT Inc.
Retail Centers of America, Inc.
Hospitality Investors Trust, Inc. (formerly American Realty Capital Hospitality Trust, Inc.)

Silver Law Group Represents Investors For The Unsuitable Sale Of REIT’s

Brokers and brokerage firms have a duty to recommend suitable investments to their customers. REITs are securities that tailor to a very specific set of investment objectives and can be risky and speculative.

Silver Law Group is experienced in representing investors in claims related to REITs and many other alternative investments. If you or someone you know experienced losses due to unsuitable recommendations of REITs or other alternative investments, contact the Silver Law Group for a confidential consultation toll free at (800)-975-4345 or e-mail ssilver@silverlaw.com.