Another Example of Non-Traded REITs' Wealth Destruction: Columbia Property Trust (Wells REIT II) Cost Investors $4.4 Billion
(Jan 2014)
Non-traded REITs are illiquid investments, not listed on public exchanges and with little to no secondary market trading. Their offering documents typically claim that after some period of time, perhaps 5-10 years, the REIT intends to list on an exchange, merge with another company, or in some other way allow investors to sell their shares but for many non-traded REITs, this "liquidity event" never occurs.
However, even if a non-traded REIT lists on a major exchange, that does not mean that...
Behringer Harvard / TIER REIT Illustrates How Non-Traded REIT Sponsors and Brokers Have Siphoned $10 Billion to $20 Billion (and Counting) From Investors
(Jan 2014)
Sponsors have issued, and brokers had sold, over $85 billion of non-traded real estate investment trusts (REITs) by the end of 2012. These investments are illiquid, high-commissioned, poorly diversified real estate investments. Despite their glaring defects another $20 billion of non-traded REITs were sold to investors in 2013.
Sponsors and brokers have siphoned off at least $20 billion from investors through their sales of non-traded REITs up through 2012. We illustrate the calculation of...
The Consequences and Implications of TIC Investments
(Nov 2013)
The research we have outlined all this week strongly suggests that TIC interests are exceptionally poor investments. We have focused our posts on what a thorough due diligence on the TICs should have revealed at the time of issuance. But you may be wondering, what happened to these TICs? What sort of returns did investors receive?
To our knowledge, there is no retrospective study of TIC returns. But in our experience, the vast majority of TIC properties suffered significant impairments during...
More on Non-Traded REIT IPOs-via-Mergers
(Feb 2013)
So far, two large non-traded REITs (Cole Credit Property Trust II and American Realty Capital Trust III) have merged with traded REITs. Merging with a traded REIT is one way for these otherwise largely illiquid investments to bring their assets to market and allow their investors to cash out. The more traditional 'exit strategy', and the strategy anticipated by most non-traded REIT offering documents, would be to have an independent initial public offering (IPO). So why are some non-traded...
Leveraged Exposure to the Mortgage REIT Sector
(Oct 2012)
Michael Aneiro over at Barron's pointed out an interesting recent SEC 424(b)2 filing from ETRACS for their Monthly Pay 2x Leveraged Mortgage REIT ETN (MORL). According to the prospectus, the ETNs will "provide a monthly compounded two times leveraged long exposure to the performance of the [Market Vectors Global Mortgage REITs Index], reduced by the Accrued Fees." This ETN is essentially a leveraged version of Market Vectors Mortgage REIT ETF (MORT) which tracks the same underlying index.
...
SEC Investigation into Largest Non-Traded REIT May Be A Sign of Things To Come
(May 2012)
As discussed in the financial press (see articles from InvestmentNews and Wall Street Journal) and the company's latest quarterly reports, Inland American Real Estate Trust is the subject of an ongoing SEC investigation. The SEC probe is determining whether the company incurred in any violations of the federal securities laws with regards to its fees, company organization structure, distributions paid to investors, and reported property impairments. Inland American is the largest non-traded...
Latest Non-Traded REIT Valuations: Not Good...
(Apr 2012)
Non-traded REITs are real estate investments sold to retail investors despite significant liquidity, transparency, and other risks. We've done a great deal of work on non-traded REITs (including a paper and blog posts), and have warned that their dividend payments and debt levels are often not sustainable. Almost all non-traded REITs are reported in customer accounts at acquisition cost, despite widespread declines in real estate values.
FINRA has recently required non-traded REITs to report...
Déjà Vu: Non-Traded Business Development Companies
(Feb 2012)
Last week we posted an introduction to non-traded REITs that highlighted the many risks inherent to those investments. As it happens, another non-traded investment has been growing in popularity, but has an almost identical set of risk factors and has recently caught the attention of regulators: non-traded business development companies (BDCs).
The resemblance between non-traded REITs and non-traded BDCs is uncanny. Both are special business classes created by Congress in the mid 20th...
An Introduction to Non-Traded REITs
(Feb 2012)
Both FINRA and the SEC have started warning investors about non-traded real estate investment trusts (REITs), which are growing in popularity but expose investors to very serious risks. We at SLCG have had a variety of cases involving non-traded REITs and would like to describe our experience analyzing these investments and what they mean for regulators and retail investors.
In the most general sense, REITs are simply companies that hold almost entirely real estate assets. These companies can...
