Yield of Dreams

Non-Traded REITs: Not the Next Madoff

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Broker/dealers and advisors who sold non-traded REITs to their clients after the market meltdown have been running scared of the potential impacts of those investments, given the negative headlines focused on non-traded REITs. But some suggest that this is not the next Madoff.

In the wake of more stringent net asset value reporting requirements, many prominent non-traded REITs saw their valuations plummet, including Cornerstone Core Properties REIT Inc., Inland Western REIT, and Behringer Harvard Opportunity REIT I.

But unlike Madoff, these were not fraudulent investments. Their losses were simply a matter of being at the wrong place at the wrong time. Such REITs raised capital and bought assets in the height of the market, as did many homeowners and day traders, said Tony Chereso, president and CEO of FactRight.

When the real estate market crashed, these REITs took big hits; the impact just didn’t show up in their valuations until now.

“A couple firms like WP Carey had the sense to shut down their offerings but no one, not the large banks, institutions, pension funds foresaw the depth of the meltdown,” Chereso said.

The REITs that they’re putting together now could be fantastic buys because they’re buying at the bottom of the market, said Jonathan Henschen, a recruiter with Henschen & Associates.

“So you can’t throw the baby out with the bathwater. It’s just, some of these products were buy high and are suffering the lows now, whereas new products coming out are great values.”

From FactRight, here is a list of non-traded REIT programs raising money and between 2003-2007, the height of the real estate market. (Note: In some cases these programs were deploying their capital past their close date. So assuming they closed—stopped raising capital from shareholders—on July 2007, it may take them an additional six to 12 months to fully deploy the capital): 

  1. Apartment Trust of America opened July 19, 2006; closed July 17, 2011
  2. Apple REIT Six opened January 23, 2004; closed March 3, 2006
  3. Apple REIT Seven ­opened March 15, 2006; closed July 16, 2007
  4. Apple REIT Eight ­opened July 19, 2007; closed April 30, 2008
  5. Behringer Harvard Opportunity REIT I ­opened September 20, 2005; closed December 28, 2007
  6. Behringer Harvard REIT I ­opened February 19, 2003; closed December 31, 2008
  7. CNL Lifestyle Properties ­opened April 16, 2004; closed April 9, 2011
  8. Cole Credit Property Trust II ­ opened June 27, 2005; closed January 2, 2009
  9. Cornerstone Core Properties ­opened January 6, 2006; suspended November 23, 2010
  10. Corporate Property Associates 15 ­opened November 30, 2011; closed August 7, 2003
  11. Corporate Property Associates 16-Global ­opened December 1, 2003; closed December 1, 2006
  12. Dividend Capital Total Realty Trust ­opened January 27, 2006; closed September 30, 2009
  13. Healthcare Trust of America ­opened September 20, 2006; closed February 28, 2011
  14. Hines Real Estate Investment Trust ­opened June 18, 2004; closed December 31, 2009
  15. Inland American Real Estate Trust ­opened August 31, 2005; closed April 6, 2009
  16. KBS Real Estate Investment Trust ­opened January 13, 2006; closed May 30, 2008
  17. Lightstone Value Plus Real Estate Investment Trust ­ opened May 23, 2005; closed October 10, 2008
  18. Wells Real Estate Investment Trust II ­opened December 1, 2003; closed June 30, 2010

 

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