Investor Lawyers Blog
With increasing frequency, given the current low interest rate environment, retail investors are steered into investing in products appearing to offer more advantageous yields than are available in traditional interest-bearing investments such as money market funds and CDs. One example is the publicly registered non-exchange traded real estate investment trust (“REIT”) or “non-traded REIT.” While non-traded REITS share certain similarities with their exchange-traded brethren, they differ in a number of key respects.
CHARACTERISTICS AND SOME DISADVANTAGES OF NON-TRADED REITS
To begin, a non-traded REIT is not listed for trading on a securities exchange. Consequently, the secondary market for non-traded REITs is typically very limited in nature. Furthermore, while some of an investor’s shares may be eligible for redemption after a certain passage of time (e.g., one year), and, even then, on a limited basis subject to certain restrictions, such redemption offers may well be priced below the purchase price or current price of the non-traded REIT. Thus, lack of liquidity and pricing inefficiency are two disadvantages to non-traded REITs, as opposed to REITs that trade on an exchange (e.g., NYSE: BXP – Boston Properties).