Brokers and financial advisors are paid heightened commissions for the sale of REITs, in particular non-traded REITS. Non-traded REITs are REITs not traded on the NYSE or NASDAQ. Securities regulators have identified this problem. Non-traded REITS can pay a broker or advisor up to 15% while most stock investments pay only around 1%.
Non-traded REITs have always been known in the securities industry to be a speculative investment. These investments failed previously, and the re-modelled versions are failing in the same fashion.
The volatility of the stock market is often given as the explanation for recommending REITs. But REITs are more dangerous because they can go out of business or lock-up an investor’s funds with little to no warning.
These investments are also commonly sold as safe or secure investments. This is a misrepresentation. Regulators identify the investments as high risk that can suffer significant losses or lose their entire value.
The value of non-traded REITs is also subject to fraudulent manipulation. The investments are valued by the fund’s “net asset value” (NAV). NAV is not set by a marketplace. Accountants and analysts, who largely benefit from a higher NAV, set the value.
This results in the funds being valued at a higher rate than warranted. The Wall Street Journal reported in December 2023 about this problem. The WSJ identified that while REITs traded on the NYSE dropped substantially, similar non-traded REITs like Blackstone actually determined that its fund increased in value. The true value of a non-traded REIT is often not known until it goes out of business.
Non-traded REIT investments are also generally illiquid. The re-sale of non-traded REITs is very difficult. Regulators have warned brokers and advisors about selling REITs to investors needing liquidity. Those approaching retirement age, and those actually retired, need liquidity to meet medical and other needs. One of the largest non-traded REITs, Blackstone, announced that it was limiting or blocking withdrawals of investors for the ninth consecutive month on August 1, 2023. Investment professionals who do not address or misrepresent the liquidity of these investments commit fraud.
These investments were also known to be high-risk due to industry changes. These changes started with the pandemic in 2020. The struggles in 2022 are also well-documented. As are the struggles in 2023. There is little excuse for investing in these investments during this time frame other than for the high commission. Those invested prior to the recent troubles are chained to the investments due to the illiquidity-a characteristic moderate investors should not have to endure.
In 2023, many REITs suffered substantial losses. These are losses that investors should not have sustained if the investment was not suitable for them – this is all but speculative investors. One of the more high-profile REITs include Blackstone’s BREIT. Large redemption requests have also been seen in the following:
Blackstone’s Real Estate Income Trust (BREIT),
Starwood Real Estate Income Trust,
KKR Real Estate Select Trust, and
RREEF Property Trust.
These are just a few. We work with investors to recover all REIT loss. The negligence and fraud associated with recommending these high-risk investments often require participation in FINRA arbitration. This is a unique process and most attorneys lack sufficient experience to obtain recovery. We have helped investors recover losses through investor arbitration for more than 20 years.