It used to be that only questionable brokerage firms sold nontraded REITs, which historically have had opaque fee structures, no real liquidity, and where investors lost about ten percent of their principal as soon as they made their nontraded, or private, REIT investment (based on about ten percent of the principal going toward brokerage firm commissions, due diligence fees and other types of fees off the top). Often, nontraded REIT distributions included returns of the investor’s own principal, to make it look like there were higher returns on the investment. To say the least, not a typical investment.
More recently, some of the larger financial companies, like Blackstone, have gotten into the nontraded REIT arena, with Blackstone’s Real Estate Investment Trust Inc. being the largest nontraded REIT available. While fees related to such nontraded REITS have come down, there are still no valid reasons for an investment advisor to recommend a nontraded REIT over a publicly traded REIT. If an investor is looking for real estate exposure, there are many publicly traded REITS that would fit the bill, while still providing liquidity and transparency to the investor. The nontraded REITs, as is becoming very apparent recently, do not provide the same liquidity to investors, with the largest two nontraded REITS recently restricting redemptions of those shares to investors, based on too many investors asking to redeem their nontraded REIT shares.
If the investor instead had purchased a publicly traded REIT, the investor merely would have needed to ask their broker to sell those shares, or gone into their brokerage account and hit a few buttons and sold the shares themselves. There is never an issue with how much publicly traded shares are worth, as you can check the price at any point while the stock market is open, and you will be able to get that price, or close to it, immediately.
Based on the lack of liquidity and based on the lack of transparency on valuation, fees and distributions, an investment advisor will really never be able to justify recommending a nontraded REIT over the many available publicly traded REITS.
If you believe your investment advisor inappropriately recommended nontraded REITS to you, and you now have questions about whether the recommendation was in your best interest, you can contact the Law Offices of Jeffrey A. Feldman at www.jeffreyfeldman.com or at (415) 391-5555 to discuss your questions and concerns.