REIT loss can be recoverable. Not every investment is appropriate for every investor. REITs are speculative investments exposing investors to a level of risk investors never intended to take. The level of risk in these investments is often misrepresented by advisors looking for higher commissions. We represent REIT investors and have represented many such investors nationwide over the past 20 years who have been inappropriately sold REIT investments. Call toll-free 844-253-5858.
In 2023, non-traded REIT sales fell to historic lows. Consequently, many of these investments reduced redemptions and became insolvent. These investments have always been known to be highly risky investments with the potential to become illiquid.
An advisor’s recommendation of these investments is often fraudulent. Advisors sell these REITs under the guise that they help the investor escape the volatility of the stock market. The truth is that these investments are just as volatile. The only difference is that the non-traded REITs have no public market or transparency of their financials so could quickly be going out of business with little to no warning. It is inexcusable for an industry professional to not know that non-traded REITs are boom-and-bust investments.
Non-traded REITs do not have a market. As such, the market does not assign a value to non-traded REITs. The resulting value assigned is largely artificial. Those giving the valuations largely have conflicted interests. These people valuating non-traded REITs, often employed by the brokerage selling the REITs, inflate valuations to not anger advisors and investors. Investors often do not know the risk of the investment until the day they receive a statement saying that the REIT is in default. This makes these investments high-risk.
While non-traded REITs make current headlines with the troubles of the commercial real estate market, the financial services industry has known them to be problematic for over a decade.
The valuation, and thus the price and redemption, is also questionable. Brokerage firms do not use normal accounting in the valuation of non-traded REITs. Non-GAAP measures are often used in determining assets and liabilities. As a result, a non-traded REIT investment is largely a “black box” where there is no true measure of the investment’s financial health.
This lack of transparency can lead to many bad things – things that happen with some frequency with these types of investments. This can include “creative accounting” to make sure the investment reaches the artificially high distribution levels. This happened with the private investment GPB Capital, where distributions of older investors were paid with the investments of newer investors. The promised 8% return of GPB was “as real as the Easter Bunny.” Ultimately, the investment, like GPB, collapses and the investor has no idea that this downfall is coming.
The heightened commissions make selling these high-risk investments alluring to advisors. The SEC warns that non-traded REIT investments can have up-front costs of approximately 15%. Advisors love selling these investments because the commissions can be 10 to 15 times greater than a mutual fund, fixed income or stock investment. As a result, the commission is the reason for the recommendation as opposed to the best interests of the investor.
Blackstone (BREIT) is the most notable troubled REIT since it is the largest non-traded REIT. This REIT is troubled and has been troubled for years. BREIT has limited yearly redemptions to 5%. As of November 2023, BREIT had limited redemptions for its 12th consecutive month. BREIT reported record losses at the end of 2023. Advisors commonly describe this investment as having moderate risk despite these troubles. In 2024, the New York Times alleged that Blackstone falsely inflated the value of its REIT. Many other similarly troubled non-traded REITs exist.
On September 25, 2024, Ashford Hospitality Trust announced that it was seeking to extend a $409.8 million loan secured by more than a dozen hotels. This Dallas REIT has struggled for years. Failure to get such extension could put the investment in default. Any representation that this investment is anything short of being extremely speculative would be a misstatement.
KBS REIT warned investors of a likely default in December 2023. Likewise, NorthStar Healthcare is a REIT that has been troubled for years.
On May 6, 2024, Fitch Ratings affirmed CapitaLand Ascott REIT as junk status. This status is due to CapitaLand’s exposure to hotels and their short-term occupancy risks.
The lack of redemption rights is a problem for those needing liquidity. Those in greatest need of liquidity are retirees. Non-traded REITs are inconsistent with the wants and needs of retirees. Advisors recommend and sell retirees these investments, thereby putting their own interests ahead of investors.
On Monday, May 21, 2024, the Wall Street Journal reported on the trouble Starwood REIT, also known as SREIT, faced. Investors of the REIT requested the withdraw of $1.3 billion in the first quarter of 2024, but SREIT only satisfied $500 million.
On July 1, 2024, The Wall Street Journal published that Starwood had tightened its redemptions as the commercial real estate market continued to lose billions.
Even REITs traded on the major exchanges suffered considerable losses, and advisors knew the investments to be speculative. Medical Properties Trust REIT lost 50% of its book value as of March 2023. The REIT is suffering from investors selling as the banking crisis remains and interest rates rise, along with many others in the sector experiencing REIT loss. Lower expectations for a reduction in interest rates are causing real estate assets to lose their appeal.
Other publicly traded REITs losing substantial value are Office Properties Income Trust, Ashford Hospitality, Brandywine Realty Trust, Boston Properties, Healthcare Realty Trust, EC World Real Estate Trust, Invitation Homes, Home REIT, Piedmont Office Realty Trust, and Prologis. In May 2024, Realty Income Corp. joined the list. The heavy concentration in real estate housing Red Lobster locations took its toll after the Red Lobster chain filed for bankruptcy.
In all, industry insiders believe that REIT losses will top $700 billion before the end of 2025. On March 28, 2024, Kevin O’Leary of Shark Tank announced that a commercial real estate was on the brink of collapse and this would have a ripple effect on the entire economy. REITs and regional banks reliant upon equity in these buildings are known, and have been known since the pandemic, to be in a very risky position.
We may be able to recover your REIT losses. Please contact us toll-free at 1-844-253-5858 for a free initial consultation.
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