Coronavirus and REITs – More Deadly than the Virus Itself
We have published many articles about Real Estate Investment Trusts (REITs) in general and in particular non traded REITs. They are a form of real estate investment that allow investors to participate in large investment projects. The trust buys and holds commercial or multi-family residential real estate for rental income and appreciation. The IRS gives them special tax advantages as long as they pay out 90% of their earnings in the form of distributions or dividends.
By definition, a non-traded REIT does not trade on a securities exchange. If you purchase an interest in one of these trusts you could be stuck holding it for years. Because of their poor liquidity. Securities regulators say they are not suitable for most investors.
We have been sounding the alarm about non traded REITs for years. And It’s not just us. The Financial Industry Regulatory Authority says,
- Avoid putting too much of your nest egg in a single REIT or in multiple REITs of the same family. “Older investors should be particularly cautious about investing large portions of their retirement income in non-traded REITs.”
- Investments in non-traded REIT are not guaranteed and may increase or decrease in value.
- Do not invest solely based on distributions the non-traded REIT may currently be generating. Distributions can be suspended for a period of time or halted altogether. (Those suspensions grow daily as much of economy hits the skids because of COV-19.
- Unlike interest from a CD or bond, REIT distributions may be funded in part or entirely by cash from investor capital or borrowings—leveraged money that does not come from income generated by the real estate itself.
- “Redemption policies can change, making it extremely difficult to get money out of the non-traded REIT when you need it.”
- Think hard before investing any proceeds from one non-traded REIT into another, particularly if both REITs are being sold by the same securities firm. While this may be good for the sales representative, who is likely to make a commission on your investment, it may not be good for you. (Commissions on non-traded REITs may be exceed 7% while most investments pay brokers just 1%.)
The Massachusetts’ securities regulator has been particularly vocal in warning stockbrokers to be very careful to only recommend non-traded REITs to investors who have a substantial net worth and that don’t need ready access to their money. Over the last decade Massachusetts has issued millions of dollars in fines against brokerage firms engaged in selling these products.
Despite all these warnings, investors poured in billions of dollars in recent years. We didn’t see too many problems as many investors were content to receive their distribution check each money.
And then came the coronavirus pandemic.
Investors Can’t Pull Their Money Out of Non-Traded REITs in the Wake of Coronavirus
Suddenly hotels were paying their mortgages. Stores were closed. Malls became ghost towns.
The COVID-19 pandemic delivered a classic one-two knock out blow to many investors. Overnight their distributions stopped meaning no income when they needed it most. At the same time, they suddenly learned they couldn’t sell their investment.
We expect to see thousands of claims against stockbrokers and the brokerage firms that employ them.
In January and February, REIT sales exceeded $1 billion per month. In March that number fell to $780 million and as of April, REIT sales plummeted to just $310 million.
Big independent brokers such as LPL Financial and Cetera have completely halted sales of non-traded investments tied to commercial real estate.
It’s not just that many brokers won’t touch them right now, many REITs have curtailed or eliminated distributions just when investors most need the money. Two large non-traded REITs, Carey Watermark Investors 1 Incorporated and Carey Watermark Investors 2 Incorporated, announced they were halting distributions. Both invested primarily in hotels.
In halting distributions, the two companies issued a joint statement saying,
“Consistent with that being experienced throughout the U.S. lodging industry, to date, the companies have experienced significant cancellations of individual rooms and group bookings and expect that they may continue to do so until the spread of the virus, or the fear of the spread, subsides. In addition, government-imposed restrictions on travel and large gatherings have adversely affected the performance of the companies’ hotels in affected areas.”
The bottom line? Since the coronavirus pandemic began, investors can’t find anyone to buy their non-traded REIT. That means they can’t access their funds or liquidate to generate cash. (Although your monthly statement may show a value, we say they are worthless if you can’t sell them when you need the money.) The pandemic also has resulted in thousands of investors not receiving monthly dividends either.
How Do You Sue a Stockbroker for REIT Losses?
The stockbroker fraud lawyers at Mahany Law understand non-traded REITs and other illiquid investments and how to recover our clients’ hard earned money. Most investment loss cases are handled on a contingent fee basis meaning you don’t owe us anything unless we recover money for you. Our consultations are always no fee and no obligation.
For more information, please visit our cornerstone information page on non-traded REITs. Ready to see if you have a case? Contact attorney Brian Mahany online, by email at brian@mahanylaw.com or by telephone at (202) 800-9791. Cases accepted nationwide.
List of Popular Non-Traded REITs
- Benefit Street Partners Realty Trust
- Black Creek Diversified Property Fund
- Black Creek Industrial REIT
- Blackstone Real Estate Income Trust
- Carey Watermark
- Carter Validus
- CIM Income NAV
- CIM Real Estate Finance Trust
- CNL Healthcare Properties
- Cole Credit Property Trust
- Cole Credit Office & Industrial
- Corporate Property Associates
- FS Credit Real Estate Income Trust
- Griffin Capital
- Griffin – American Healthcare
- Hartman Short Term Income Properties
- Hartman vREIT
- Healthcare Trust
- Highlands REIT
- Hines Global
- Hospitality Investors Trust
- Inland Real Estate Income Trust
- Inven Trust Properties
- Jones Lang LaSalle Income Property Trust
- KBS Growth & Income REIT
- KBS Real Estate Investment Trust
- Lightstone Real Estate Income Trust
- Lightstone Value Plus
- Moody National REIT
- New York City REIT
- NorthStar Healthcare Income
- Nuveen Global Cities REIT
- Pacific Oak Strategic Opportunity
- Parking REIT
- Phillips Edison & Company
- Procaccianti Hotel REIT
- Resource Apartment REIT
- Resource Real Estate Opportunity REIT
- Rodin Global Property Trust
- Rodin Income Trust
- RREEF Property Trust
- SmartStop Self Storage REIT
- Starwood Real Estate Income Trust
- Steadfast Apartment REIT
- Steadfast Income REIT
- Strategic Realty Trust
- Strategic Storage Trust
- Summit Healthcare REIT
*Don’t see the name of the REIT that is causing you problems? This list isn’t all inclusive and doesn’t include so-called “private REITs” which may actually be worse for investors. If you lost money in any REIT and think you were misled by your stockbroker or other financial professional, call us at the numbers above.
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