Many investors who suffered significant REIT losses in KBS REIT I and KBS REIT II are exploring their options for loss recovery through a Financial Industry Regulatory Authority arbitration claim. KBS REIT I is a non-traded real estate investment trust with a focus on commercial real estate. It has raised around $1.7 billion from investors. Current estimations indicate that investors’ interests in KBS REIT I are worth $5.16 per share. The last change in valuation occurred in late 2009, at which time the investment was valued at $7.32 per share; the new valuation represents a 29 percent decline from that value and a drop of almost 50 percent from the investment’s initial offering price of $10 per share.
In addition, investors of both KBS REIT I and KBS REIT II have been informed that they would not receive any more distributions. Prior to this announcement, KBS REIT I investors were receiving annual distributions of 5.3 percent. Reportedly, KBS REIT I has also suspended redemptions. This means that investors who hold shares in this investment may have trouble selling their investment or could face serious losses by selling on the secondary market. Secondary market buyers are very unlikely to pay for shares of KBS REIT I at the appraised value.
Typically, REITs carry a high commission, which motivates some brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15% percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. Arbitration claims have already been filed, or are in the process of being filed, against Ameriprise on behalf of KBS REIT investors who were allegedly led to believe that the REIT was safe, similar to investing in a bond, could be liquidated, provided guaranteed monthly distributions, and that the value of the investment would not fall below the initial purchase price of $10 per share.
Investor Lawyers Blog
