What Disclosures Are Required for REITs

There are many pitfalls associated with investing in REITs that investors should be aware of. What makes REITs risky is their ambiguity within the investment market and lack of strict regulation to match. If you have been offered investment options related to REITs or suspect that you have been the victim of a fraudulent investment related to REITs, it is important to read the information below. Our attorneys can help recover unsuitable investment losses. Stockbrokers frequently recommend REITs because of the high commissions they can earn.

REITs are defined as a company or investment trust that retains diverse portfolios of real estate assets. Typically, these portfolios are sector-specific and include real estate investments related to: Residential, Commercial, Healthcare, Office, and Industrial property options. What makes these diverse portfolios risky is that it is not unusual to have part of the assets in the REIT portfolio specified, which can lead to investors not being aware of the full nature of the real estate assets that they are actually investing in. REITs can also be related to mortgages, which can also increase the risk of investors.

Brokers that are involved in the sale of Non-Traded REITs are required to provide disclosures regarding the per share estimated value for the REIT. This value must be calculated by either using the Appraised Value Methodology or the Net Investment Methodology. The Appraised Value Methodology is the appraised valuation disclosed in the issuer’s most recent periodic or current report filed with the SEC. The Net Investment Methodology requires the firm to disclose to the investor whether part of the distribution from the REIT includes a return of capital, which will lower the estimated per share value shown on the account statement.

Additional disclosures that are required from firms that sell Non-Traded REITs have to demonstrate that: the securities are not listed on a securities exchange, that the securities in the particular portfolio are illiquid, and that if the customer ends up trading the securities, that the price received may be less than the predicted/estimated per share value provided in the original account statement. Firms that have not disclosed this information should be avoided by investors and reported for their lack of compliance.

REITs carry many risks as many of their investment terms are loosely defined, which causes investors that are inexperienced to not realize their potential risks. That said, potential risks that investors can face are related to severe issues such as: excessive fees, lack of liquidity, lack of share value transparency, distributions that may come from the principal investment, and conflicts of interest related to REITs not having employees and paying external managers high transaction fees/bonuses. It is important for investors to have a strong understanding of exactly what they are agreeing to in order to avoid these risks that could have the potential to cause significant investment losses.

It is important to be aware that there have been many cases regarding complaints pertaining to fraud associated with REITs and their investment portfolios. Silver Law Group is dedicated to representing the interests of investors that have been victims of investor fraud. Our firm has many years of experience recovering investor losses resulting from fraudulent investor schemes. If you suspect that you have been a victim of fraud associated with REITs and have questions regarding your legal rights or potential for recovery, please contact Scott Silver or the Silver Law Group for a complimentary consultation at ssilver@silverlaw.com or toll-free at (800) 975-4345.