Articles Posted in REIT

Non-traded REITs are illiquid investments, not listed on public exchanges and with a very limited market for sale of shares if the investor wishes to sell subsequent to his or her initial purchase.. Their offering documents typically claim that after some period of time, perhaps 5-10 years, the REIT intends to list on an exchange, merge with another company, or in some other way allow investors to sell their shares- a so called “liquidity event.”  However, for many non-traded REITs that began to be sold to investors eight to ten years ago, such a “liquidity event” has failed to take place.  Further, non-traded REIT investments have greatly underperformed other asset classes and in many instances have made distributions to investors that are derived not from income derived from their underlying assets, but rather from the proceeds of the sale of additional shares in the REITs to subsequent investor.

Even if a non-traded REIT lists on a major exchange, that does not mean that its original investors have benefited from being sold such an illiquid investment.  An example of a non-traded REIT that has consistently underperformed similar liquid and publicly-traded investments is Columbia Property Trust (CXP, formerly known as Wells Real Estate Investment Trust II).  Columbia/Wells II was first sold as a non-traded REIT in 2004 and subsequently listed on the New York Stock Exchange in October 2013. Before it was listed, it sold shares to new investors at $10 per share. After its first day trading on the NYSE, its per share value was $22.52. 

However, this $22.52 a share valuation resulted from a four-for-one stock split, meaning that the shares sold for $10.00 a share prior to the IPO were effectively worth only $5.63 a share.   .