Real estate private placement and non-traded REIT fraud: a protection guide for real estate investors

Bradd Milove | San Diego Investment Attorney

Non-traded REITs can pose risks for unsuspecting investors.

By Bradd Milove

Non-traded REITs have received a lot of bad press in the past year (including coverage in our own securities and investment law column last month). But despite the many risks associated with such investments, it would seem that they are here to stay. In a recent Wall Street Journal report, experts noted that non-traded REITs have generated more than $73 billion in the last decade, despite the effects of a crippling recession. And that kind of profit, coupled with the attractive selling points of many real estate offerings, has industry commentators predicting that even government regulation and heightened scrutiny won’t suffice to pull these tricky investments from the market for good. Therefore, it is important for investors to have a firm grasp on the fine print when it comes to private placement and non-traded real estate investments; and to understand the steps that government agencies are taking on investors’ behalf in order to minimize their chances of being victimized by real estate investment fraud.

Unlike publicly traded REITs, non-traded REITs are private – meaning that they do not trade on the national stock exchange and are thus highly illiquid, making it difficult for investors to redeem their shares in a pinch. They are also subject to substantial up-front fees that can oftentimes total in excess of returns; and on top of all this, the private nature of non-traded real estate investment trusts makes it possible for unscrupulous promoters to manipulate distributions and take advantage of unsuspecting investors due to decreased regulatory oversight. One of the most common practices among promoters of non-traded REITs is the use of investor principal as a substitute for property generated income: in other words, the promoters pretend to give their clients funds earned from property operations, when in fact they are simply paying them with their own invested money to conceal low or non-existent actual income. In response to this activity, the SEC and FINRA have taken action to help educate and protect investors – and to discourage promoters from taking further advantage of the private investment system.

Investor safety checklist: what to do when considering a private placement real estate investment

In spite of the fact that countless individuals have been scammed at the hands of dishonest “private placement” and non-traded REIT promoters, these investments are still an appealing option for many individuals thanks to the promise of higher income when compared to those associated with fixed income alternatives. Particularly when pitched from this perspective, private placement real estate offerings hold enticing potential; and that’s why the SEC published the following tips in a recent Corporate Finance Disclosure Guidance report to help investors minimize fraud risk before sinking money into such funds in the future.

When brokers offer a real estate private placement, investors should be sure to address the following concerns with their promoters (all of whom should disclose this information according to SEC guidelines):

  • Insist on an even discussion of both the risks and rewards associated with the investment in question.
  • Check to make sure that all sales materials information is consistent with that included in the investment prospectus
  • Inquire about the schedule and source of investor distributions – and ask specifically if earnings are generally high enough to cover those distributions without the need to dip into investor funds.
  • Confirm property ownership information and details, ask for information about redemption programs, and consult market performance data prior to making a decision.

Anyone who evades these questions may be involved in fraudulent activity, and investors are cautioned to avoid making any purchases until they are informed to their satisfaction in accordance with SEC guidelines.

After serving many years as San Diego investment attorneys, our team at the law firm of Miller & Milove encourages investors to pay close attention to SEC and FINRA regulations and investor bulletins, and to abide by government warnings in order to avoid the pitfalls of real estate investment fraud. To learn more about protecting yourself, or to discuss compensation options in the face of fraudulent investment activity, contact us today: www.thesecuritiesfraudlawyers.com.

Related posts:

  1. Investors beware: hidden risks and regulatory warnings for non-traded REITs
  2. TIC investment fraud: how to protect against dishonest 1031 real estate deals
  3. Kris Humphries joins fellow celebrity fraud victims, faces investment fraud loss on top of Kardashian divorce filing
  4. Investor protection and market reform may appeal to Occupy Wall Street protestors
  5. Real estate agent Laurie Perry helps clients through every aspect of home-buying process

Short URL: http://www.delmartimes.net/?p=30595

Posted by Social Media Staff on Jan 15, 2012. Filed under Bradd Milove, Columns, Sponsored Columns. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

Leave a Reply

Archives

Facebook

Bottom Buttons 1

Bottom Buttons 2

Bottom Buttons 3

Bottom Buttons 4

Bottom Buttons 5

Bottom Buttons 6

LA JOLLA NEWS

RANCHO SANTA FE NEWS

RANCHO SANTA FE NEWS

RSS RANCHO SANTA FE NEWS

  • Czech violin duo to perform at Village Church in Rancho Santa Fe
    In cooperation with the Consulate General of the Czech Republic, the Czech School San Diego hosts a free classical violin concert by internationally recognized Czech violin player Jaroslav Svecený and his daughter, Julie Svecená, who are on a tour of the United States. The concert will be at 7 p.m. Oct. 27 in the Village Church. The father-daughter duo will […]
  • Rancho Santa Fe weekly sports update
    Torrey Pines defeated Canyon Crest Academy 4-3 in a Palomar League opener for both teams on Oct. 9. Alayna Tomlinson and Farah Farjood each scored two goals to lead the Falcons. Samantha “Sammy” Cirino added one goal and one assist. […]
  • ‘Kachina Dolls and Dances’ to be topic at Rancho Santa Fe Historical Society lecture
    Native American expert Dr. James Kemp will discuss “Kachina Dolls and Dances” from 10:30 a.m.-12:30 p.m. Saturday, Oct. 25, at the Rancho Santa Fe Historical Society. Katsina figures, also known as kachina dolls (in photo at right), were carved typically from cottonwood root by the Hopi people to instruct young girls and new brides about the katsinas, the im […]