We have been involved in a number of cases involving private Real Estate Investment Trusts (REITS). Some of these Trusts have been sold to investors, without disclosure that they cannot be easily sold. Drops in the interest rates available to many investors have caused investors to seek higher yielding investment. Dishonest stockbrokers and investment advisors have taken advantage of this investor need by offering investment products that supposedly have high yields but present undisclosed risk of loss. One product like this is the real estate investment trust (REIT). Many of these REITS and private REITS and cannot be easily sold or "Non-Traded REITS."
A REIT, is usually a corporation or trust which owns income-producing real estate. REITs combine the capital of numerous investors to purchase a portfolio of properties-from office buildings and shopping centers to hotels and apartments, which the typical investor might not otherwise be able to purchase individually. Many REITs are publicly traded, but many are private and are not traded.
Brokerage customers are not aware generally that many REITs cannot be easily sold. Brokerages firms have sold private REITs to customers without regard to the suitability of the investment. Redemption of shares may be limited or impossible.
Many times the fees for the REITs are excessive. These fees are often deducted from the purchase price, so that the investors are not aware of the high fees. Distributions of "income" that make these products attractive may be subsidized by borrowed funds. The REIT may be paying the customer with his/her own money.
Because fees may be high, and principal may be distributed back to the investor, in many cases losses occur. The risks of a REIT, especially a "Non Traded REIT", may never have been disclosed to the investor. This is actionable.
We note that when a private REIT is involved, on frequent occasion there is no actively traded market for the REIT. That means the investor may not be able to sell his or her interest. On frequent occasion also, the REITS are touted as having a “high return” means interest or dividend payment distributions, only to find that the return goes down or disappears. The brokerage customer may not have been informed of these risks.
The specific claims related to non traded REITS are usually based on omissions and frauds perpetrated by the broker or investment advisor. On may occasions also, a claim may be founded upon “unsuitability” of the REIT. One example of this might be the sale of a non tradeable REIT to an older person who did not understand the risks involved with the REIT or that it may not be sold. On other occasions, the investor may not understand the high fees involved with a purchase.
Other sorts of REITS may involve not just the ownership of real estate through a REIT, but ownership of a mortgage. The same considerations are involved as when the investor purchases a REIT involved with direct ownership of real estate.
Investors have a right to arbitrate claims concerning improper sales of non-traded REITs by stockbrokers or Investment Advisors. Generally these claims come before the American Arbitration Association or are litigated in Court.
Investors who believe they may have been sold unsuitable non-traded REITs or who believe they have been misled into purchasing non-traded REITs may contact the Law Office of Anthony M. Abraham, Esq., PC for a confidential, no obligation consultation.Call Us for a Free Consultation
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