Non-Traded REITs May Not Reflect Their True Value on Customer Account Statements

The attorneys at Eccleston Law are continuing to represent investors in FINRA arbitration proceedings to recover their investment losses and frozen funds in non-traded REITs such a Behringer Harvard, Cole Properties, Apple REITs, Hines REITs, and others. 

Investors in these products often have great difficulty in determining the true value of the non-traded REITs that they have purchased.   This problem is so serious that FINRA has issued guidance to brokerage firms regarding their obligations to accurately reflect the price the non-traded REITs on customer account statements.

NASD Rule 2340 requires members to include an estimated value for any REIT held in a customer account or appearing on the customer’s statement if the REIT’s annual report contains an estimated per share value. (See Rule 2340(c)(1)(B). Under this rule, that estimated per share value may come from the annual report itself, an independent valuation service, or any other source.

However, under Rule 2340(c)(2), FINRA states that a brokerage firm may only include an estimated per share value of a non-traded REIT if the estimated value uses data that is no more than 18 months old. FINRA Regulatory Notice 09-09 echos this requirement, stating that in accordance with Rule 2340(c)(2), firms must not use an estimated par value  on a customer account statement more than 18 months after the conclusion of an offering, unless an appraisal of the program’s assets and operations yield the same value.

Rule 2340(c) also states that member firms must abstain from using an estimated per share value on a customer’s statement, if the firm “can demonstrate the value… no longer is accurate as a result of a material change in the operations or assets of a program or trust.” Rule 2340(c)(4).

The values of many non-traded REITs have finally been “marked to market” by most brokerage firms. The customer statements are beginning to show the true valuation of these non-traded REITs, and consequently the unrealized losses investors may have in these positions.

Unfortunately for investors, these numbers may still be higher than what is being offered in the secondary market.  For example, a recent offer for shares in a Behringer Harvard REIT on the secondary market was $1.50, down from $10, representing an 85% decline in value in this position.

If you have invested in any non-traded REIT and find that you have suffered losses (including unrealized losses) when your investment was “market to market”, please contact one of our attorneys at 312-332-0000.  Our attorneys are representing investors who have suffered losses investing in non-traded REITs along with those who are seeking to rescind (get out of) their investment in these investments without realizing losses.