FINRA Investigating Nonlisted REITs After Flurry of Complaints
BusinessWeek reports: The broker’s pitch was appealing: Inland Western Retail Real Estate Trust Inc. would pay steady dividends and the stock price wouldn’t fluctuate with the market. In 2004, Robert and Davida Wendorf invested $100,000.
Last year, the real estate investment trust, which isn’t listed on an exchange, slashed its payout by 70 percent. It had earlier suspended a program under which the Wendorfs could have sold back shares at the same $10 apiece they paid, a key draw for the couple. By the end of 2009, the company had reset the stock price to $6.85.
Regulators are examining brokers who sell unlisted REITs, which have raised $59 billion since 2000, as investors such as the Wendorfs complain they weren’t properly informed of the risks. The Financial Industry Regulatory Authority has stepped up its scrutiny by opening formal investigations into “marketing, advertising, disclosure, suitability analyses and more,” according to an e-mailed statement.
Finra started the probes after sending letters in March 2009 seeking information from the 10 to 20 most-active brokers in the market, a person with knowledge of the matter said at the time. The initial inquiry was meant to determine whether the firms weighed and disclosed risks to clients, the person said. Herb Perone, a Finra spokesman in Washington, declined to identify the brokerages.
Nontraded REITs were among the most active buyers in the commercial real estate market last year. Five of the top 10 REIT operators ranked by acquisitions were unlisted, including Inland Real Estate Group, which was second at $863 million, according to global commercial property research firm Real Capital Analytics Inc. Kimco Realty Corp., a public REIT based in New Hyde Park, New York, topped the list with $910 million of purchases.
View the full article on BusinessWeek: FINRA Investigating Nonlisted REITs After Flurry of Complaints
Posted by: Nina Turner