Non-traded REITs are dangerous investments for most. The lack of transparency surrounding the true value of the product and the often high fees and costs associated with the investment compound to solidify this position. Economists and commentators are continuing to investigate and speak out about these dangers.
“Non-traded REITs are a favorite of some advisors because they can charge such exorbitant fees,” said Peter Mougey, a shareholder with the Levin, Papantonio law firm and director of the firm’s Business and Securities Litigation Departments. “Investors should avoid these products; the hidden fees and high costs make them a poor choice.”
A report published this Tuesday authored by Tim Husson, PhD, FRM, Craig McCann, PhD, CFA, and Carmen Taveras PhD, decided to take a closer look at “how investors fared in five non-traded REITs” that came from The Inland Real Estate Group of Companies. The researchers found that Inland had raised $18.1 billion from investors for the REITs and that their investments were now worth $13.7 billion.
Further, the researchers claim that “Had stockholders invested the same $18.1 billion over the same time period in traded REITs, they’re [sic] investments would have been worth $25.5 billion. Thus, Inland had destroyed $11.9 billion or 46.5% of real estate investors’ wealth through its non-traded REITs.”
The market for non-traded REITs has raised enough concern that FINRA issued a warning about the potential pitfalls with non-traded REITs, “If you are considering a publicly registered non-exchange traded REIT, be prepared to ask questions about the benefits, risks, features and fees.”
“The illiquidity of nontraded REITs can cause significant problems for investors,” Mr. Mougey added. “There are so many less expensive and better performing options with significantly more transparency than non-traded REITs.”
Joshua is a writer and researcher with Ring of Fire. You can follow him on Twitter @Joshual33.
