Posts tagged ‘KBS REIT fraud’
Non-traded REITs destined to lose?
According to a report in the Investment News, a new study confirms that non-traded REITS consistently underperform the broad market of real estate investing in large part because of the high fees and commissions associated with these investments (the fees for non-traded REITs are often as high as 12-15%).
The study found that 70% of the non-traded REITs included in the study underperformed basic benchmarks. The study is particularly timely as the initial public offering market for nontraded REITs, known in the industry as a “liquidity event” or “going full cycle,” has heated up this year. Since March, three nontraded REITs have listed on exchanges, with more likely to come, each with limited to no success.
Notwithstanding the poor track record of these investments, brokerage firms have only increased the sale of such products. According to an executive summary of the study performed the nontraded REIT industry had $84 billion in assets under management at the end of 2011 (representing huge growth in the industry). Certainly, an inference can be made that the industry is actively looking to grow this investment area because of the very commissions that makes it so difficult for these investments to succeed.
The study was performed by BlueVault Partners LLC and the University of Texas at Austin’s McCombs School of Business. For more information on the study, visit http://www.investmentnews.com.
The White Law Group continues to file arbitration claims involving non-traded REITs. Generally these claims argue that the broker-dealers that sold these investments failed to perform the necessary due diligence on the non-traded REITs prior to offering them for sale to their clients and that the brokerage firms failed to property assess whether the investments were suitable for their clients in light of their client’s age, net worth, investment experience, and investment objectives.
The White Law Group has filed claims involving the following non-traded REITs (among others): Desert Capital REIT, Cornerstone Core Properties, CIP Levaraged Fund Advisors, Cornerstone Health Care REIT, Behringer Harvard REIT, Inland Western REIT, Inland American REIT, KBS REIT, and AmREIT.
If you invested in a non-traded REIT and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. For more information on the firm visit http://www.whitesecuritieslaw.com.
Lack of Transparency in Non-Traded REIT Valuations
The White Law Group continues to file FINRA arbitration claims to recover investment losses in non-traded REITs. We have filed cases involving Behringer Harvard REIT, Behringer Harvard Short-term Opportunity REIT, Inland Western, Inland American, Desert Capital REIT, Cornerstone Healthcare REIT, CIP Leveraged Advisors, and KBS REIT, among many others.
The problems with these investments generally relates to the financial advisor’s failure to adequately disclose the risks and illiquidity of these investments (as well as the high commission he/she earned which was no doubt the real driving force in recommending the investments).
One of the other main complaints we continually hear relates to the problems in the valuation of these investments. Finra rules currently mandate that sponsors of nontraded REITs establish an estimated per-share valuation within 18 months after the REIT stops raising money from investors. The problem with this language is that fund raising often lasts for years which results in the per-share valuation potentially remaining unchanged for years.
Also, the conflict of interest in having the sponsor of the nontraded REIT establish the valuation of the REIT is obvious. Notwithstanding this obvious conflict, certain non-traded REITs are still fighting the manner in which valuations will be done in the future.
The Investment News recently reported that the nontraded-REIT industry is deeply divided about valuations as regulators prepare to codify rules on creating an estimated share value for these products.
A key sticking point is whether REITs and other private investments should use an independent third party to conduct appraisals.
Apparently certain non-traded REIT sponsors argued that the wide variety of private-investment products makes mandatory third-party appraisals inappropriate. This position is ludicrous and touches on the main problems with these investments – transparency.
Is it not problematic enough for investors that the investment is illiquid, but the industry would like for these investors to also have no reasonable way of knowing what an independent valuation of the shares actually is?
It also appears that the proposed changes may be moving in the wrong direction. Under the new proposal, broker-dealers no longer would be required to provide a per-share estimated value, unless the issuer provided an estimate based upon an appraisal of assets and liabilities in a periodic or current report under the Securities and Exchange Act of 1934.
Instead, during the initial offering period, broker-dealers would have the option of using a modified net offering price or designating the securities as “not priced.”
We have already seen at least one brokerage firms use the “not priced” method on its account statements and this allows for the possibility that the firm’s advisors could misrepresent the price to assuage fears and concerns about the pricing of the non-traded REIT.
What the non-traded REIT industry needs is complete transparency – transparency regarding pricing, transparency regarding the commissions generated, and transparency regarding the secondary market prices available to those investors looking to sell.
The reason that the industry fights so hard to oppose these things is that if they existed, people would quickly discover that non-traded REITs are created to be sold and not bought.
If you are a non-traded REIT investor interested in your litigation options, please call the securities attorneys of The White Law Group at 312-238-9650 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. The firm exclusively represents investors in FINRA arbitration claims against their brokerage firm or financial professional.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.
KBS REIT I Valuation Drops Again and Signals More Trouble for Investors
Investors in the popular non-traded REIT, KBS Real Estate Trust Inc. (KBS REIT I), were reportedly notified on Monday that the value of their shares is now estimated by the company at $5.16. The new valuation represents a 29% drop from the last change to the valuation in late 2009 and a nearly 50% drop since shares of KBS REIT I were initially offered at $10.00. Additionally, KBS investors were told that they would no longer be receiving any distributions. KBS REIT I is just the latest major non-traded REIT to see a drop in its valuation in recent months as many of these investments have struggled with a difficult real estate market over the last couple of years.
This most recent valuation will likely be troubling to many investors in the KBS non-traded REIT. If you invested in KBS REIT I and are wondering if you may have recourse to recover your investment, The White Law Group may be able to assist you in pursuing recovery of your nontraded REIT damages through FINRA arbitration process. The Financial Industry Regulatory Authority (FINRA) continues to pay close attention to issues related to non-traded REITs, including how they are sold and valuated.
The White Law Group has represented many investors who have struggled with non-traded REIT investments, including KBS Real Estate Investment Trust, Inc. (KBS REIT I), over the past few years in the FINRA dispute resolution claims.
The firm has seen several issues commonly arise around how non-traded REITS are sold and represented to investors. In many cases the risks associated with nontraded REITs were not adequately represented before purchase and investors have often been over-concentrated in this type of real estate investment. In some cases, the fact that advisors receive relatively high commissions for the sale of nontraded REITs compared to other products may have contributed to some investors being unsuitably invested in non-traded REIT investments. Finally, it seems common that the illiquid nature of non-traded REITs has not been made clear to some investors. Investors in nontraded REITs, like KBS REIT I, that have had redemption programs suspended may have difficulty selling their investments or suffer a serious loss on the secondary market.
Brokerage firms and financial advisers have a fiduciary duty to perform due diligence on any investment and to insure that an investment is appropriate in light of the investor’s age, investment experience, and investment objectives. If a broker or brokerage firm fails in this responsibility, investors may have an actionable claim to recover their investment losses in a claim through FINRA dispute resolution.
If you are concerned about your investment in KBS Real Estate Investment Trust, Inc. (KBS REIT I) or another nontraded REIT investment and would like to speak to a securities attorney about potential to recover your investment losses through FINRA dispute resolution please call our Chicago office at 312-238-9650.
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 Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.
Are you concerned about your KBS REIT investment?
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).
(1) 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.
(2) 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.
(3) 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).
(4) Free Consultation
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 312-238-9650.
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 Boca Raton, Florida.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.
Recovery of REIT Investment Losses
The White Law Group is investigating potential securities fraud claims on behalf of investors involving non-traded REIT investments.
Non-traded REITs are less regulated than other, more traditional investments and often pay a much higher commission than other products. Additionally, non-traded REITs are generally illiquid, making them unsuitable for elderly and retired clients who purchased them at the recommendation of their financial advisor.
Another problem with non-traded REITs is the manner in which they are sold and the disclosures made about the investments to investors. Many investors in non-traded REITs have found themselves blindsided after discovering that their investments were high-risk, illiquid and contained highly specific and lengthy exit clauses.
FINRA is particularly focused on non-traded REITs right now, as it seems that many of the independent brokerage firms are selling these products to their clients. These firms have a fiduciary duty to their clients to research the investments they recommend prior to offering them for sale and to insure that the investments are appropriate for the client. Given the issues involved in non-traded REITs (and the commissions that are paid to the broker and brokerage firm), in many cases it is impossible for a brokerage firm to demonstrate that they have fulfilled their obligation to the client as these investments are simply inappropriate for many investors.
Some examples of non-traded REITs sold to investors by brokerage firms are as follows:
Behringer Harvard REIT I, Inc.
Behringer Harvard Multifamily REIT I, Inc.
Behringer Harvard Opportunity REIT I, Inc.
Behringer Harvard Opportunity REIT II, Inc.
CNL Lifestyle Properties, Inc.
Cole Credit Property Trust, Inc.
Cole Credit Property Trust II, Inc.
Cole Credit Property Trust III, Inc.
Grubb & Ellis Apartment REIT, Inc.
Healthcare Trust of America, Inc.
Inland American Real Estate Trust, Inc.
Inland Western Retail Real Estate Trust, Inc.
KBS Real Estate Investment Trust I, Inc.
KBS Real Estate Investment Trust II, Inc.
Piedmont Office Realty Trust, Inc.
Wells Real Estate Investment Trust II
Blackstone Real Estate Advisors
INREIT Real Estate Investment Trust
The Community Development Trust
If you have questions about a non-traded REIT investment you purchased, the securities attorneys of The White Law Group may be able to help. For a free consultation, call the firm’s Chicago office at 312-238-9650.
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 Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.