KBS REIT Investment Losses
KBS REIT is a public, non-traded real estate investment trust. There are two KBS REITs, KBS REIT I and II, both which were sold by prospectus through FINRA registered broker-dealers.
Generally non-traded REITs are valued once a year based on the appraised value of the properties the REIT owns (making it difficult to evaluate the current value of your non-traded REIT investment).
Current KBS Share Valuation
Although KBS REIT I last reset its value to $7.17 in late 2009, investors with whom we have spoken have stated that they are concerned about a further devaluation of the share price in the coming months.
This assumption does seem supported by the facts. It has been reported that KBS Real Estate Investment Trust has stopped redeeming or been unable to redeem all of the shares submitted for redemption. Based on what has occurred with other non-traded REITs, like Desert Capital and Apple REIT, the next step after a suspension of a REITs redemption program is often a devaluation of the REIT’s share prices.
KBS REIT Liquidity
Complicating matters for KBS REIT owners is the difficulty in selling these investments. There are a few places out there that buy non-traded REITs, like KBS REIT, on the “secondary market.” These companies include REIT Secondary Exchange, American Partnership Board, and Second Market. Unfortunately, the “secondary market” is often trolled by buyers seeking to purchase assets at extremely low and depressed prices. It is unlikely that buyers on the secondary market would be willing to pay anywhere near the announced book value (or “appraised value”).
The alleged suspension of KBS REIT’s redemption program also highlights the valuation and liquidity risk issues faced by investors with unlisted, non-traded REITs.
A potential inability to trade and liquidate shares, coupled with a decreased dividend, places unlisted REIT investors in a dangerous situation and increases the risk of financial ruin.
Potential Recovery of KBS REIT Losses
The White Law Group has many ongoing FINRA arbitration cases involving a brokerage firms’ improper recommendation of KBS REIT to a client. In the firm’s experience, brokerage firms often misrepresent the risks of KBS REIT and improperly sell the investment to investors who are either retired or seeking income.
Brokerage firms have a fiduciary duty to research investments prior to recommending them for sale and to insure that each investment recommended is appropriate in light of the client’s age, investment experience, net worth, and investment objectives. This obligation is commonly referred to as the Know Your Customer Rule.
Unfortunately, due to the relatively high interest or dividend offered by non-traded REITs like KBS REIT, retired investors are often attracted to these products. Additionally, REITs typically pay a high commission – often as much as 15% (which often explains the stockbroker’s motivation in recommending the REIT investment to an investor who simply should not be in the product).
If you are concerned about your KBS REIT investment and would like to speak with an experienced securities attorney for a free consultation, please contact The White Law Group at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Vero Beach, Florida.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.