In the dynamic world of real estate investment, Real Estate Investment Trusts (REITs) have been an option for investors for many years. Some REITs are publicly traded, meaning you can get in and out of your investment easily, trading it in public markets. Other REITs are not publicly traded though. And 2023 exposed the extreme vulnerabilities of these Private REITs, also called nontraded REITs.

Private REITs, unlike their publicly traded counterparts, do not offer the same level of transparency and liquidity. Their prices are not updated daily on public exchanges but are instead reported quarterly or yearly. This lag in price updates can lead to a mismatch between the perceived and actual value of the investment, causing confusion for investors when realities don’t align with expectations.

2023 was particularly turbulent for private REITs. The commercial property market, which these trusts heavily invest in, faced severe challenges. As a result, fundraising for nontraded REITs plummeted, while redemptions surged as investors rushed to exit. The scale of redemption requests was so significant that sponsors had to limit the rate at which investors could withdraw their money, further fueling investor unease.

One of the major concerns in REITs right now is the valuation of properties held by these REITs. While public REITs saw a more substantial decline in share values, the fall in nontraded REIT shares was relatively smaller. This discrepancy has raised questions about whether the valuations accurately reflect the market conditions, fueling even more skepticism among investors.

Financial advisors who have aggressively sold private REITs are now under scrutiny, especially since these investments often carry high commissions. In other words, they cost more for the investor to buy and make the advisor more money.  The poor performance of these investments reflects negatively on advisors, suggesting a conflict of interest and puts into question their legally required commitment to serve the best interests of their clients.

If you invested in Private REITs in 2023 and lost money, or weren’t able to withdraw your investments, Contact Us today to find out if you have a claim against your broker who recommended them.