Non-Traded REIT Risks, Losses & Lawsuits: Are They Safe Investments?
Non-traded real estate investment trusts (REITs) are often marketed to retail investors as stable, income-producing investments. However, many investors are not fully informed about the significant risks, high fees, and limited liquidity associated with these complex financial products.
In recent years, non-traded REITs have faced increased scrutiny due to redemption restrictions, declining property values, and valuation concerns—raising serious questions about whether these investments are appropriate for many investors.
If you were advised to invest in a non-traded REIT and have experienced losses or difficulty accessing your funds, you may have legal options.
Current Trends in Non-Traded REITs (2024–2026)
Following a sharp slowdown in fundraising and increased redemption pressure in 2023, non-traded REITs continue to face challenges, including:
- Higher interest rates impacting real estate valuations
- Ongoing weakness in commercial real estate, particularly office space
- Increased redemption requests, often subject to strict limits
- Net asset value (NAV) volatility and valuation concerns
- A broader shift by investors toward more liquid alternative investments
Many non-traded REITs have implemented or maintained redemption caps, limiting investors’ ability to access their money—highlighting the illiquid nature of these investments.
Non-Traded REIT Risks
While these products are often marketed as income-generating investments, they carry substantial risks:
Illiquidity
Non-traded REITs are not listed on public exchanges, meaning:
- There is no active secondary market
- Investors may be unable to sell shares when needed
- Redemption programs are often limited, suspended, or discounted
High Fees and Commissions
Front-end fees can reach 10%–15% of the investment, significantly reducing the amount of capital actually invested.
Valuation Concerns
Because shares are not publicly traded:
- Pricing is often based on internal estimates
- Investors may not receive an accurate reflection of true market value
- Some reports have suggested potential overvaluation in certain market conditions
Interest Rate Sensitivity
Rising interest rates can:
- Reduce property values
- Increase borrowing costs
- Pressure overall returns
Distribution Risks
Distributions are not guaranteed and may:
- Be funded by borrowed money or return of capital
- Create a misleading impression of performance
Non-Traded REITs vs. Exchange-Traded REITs
Feature | Non-Traded REITs | Exchange-Traded REITs |
Liquidity | Very limited | Highly liquid |
Pricing | Estimated (NAV-based) | Market-driven |
Fees | High upfront costs | Lower transaction costs |
Transparency | Limited | Greater public disclosure |
Exit Options | Restricted | Easy to buy/sell |
Private REITs: Even Higher Risk
Private (unregistered) REITs present additional concerns:
- Limited or no SEC reporting requirements
- Minimal transparency
- Often restricted to accredited investors
- Extremely limited liquidity
These investments can be difficult to value and even harder to exit.
When Can You Recover Losses from a Non-Traded REIT?
Investors may be able to recover losses through FINRA arbitration if a financial advisor or brokerage firm engaged in misconduct.
Common legal claims include:
Unsuitable Investment Recommendations
Non-traded REITs may be inappropriate for:
- Retirees or income-dependent investors
- Investors needing liquidity
- Conservative or low-risk investors
Misrepresentation or Omission
Advisors may:
- Describe the investment as “safe” or “low-risk”
- Fail to disclose liquidity restrictions
- Downplay fees or conflicts of interest
Overconcentration
Placing too much of a client’s portfolio into illiquid investments can significantly increase risk.
Failure to Supervise
Brokerage firms may be liable for failing to properly supervise their advisors’ recommendations.
Red Flags in Non-Traded REIT Sales
Be cautious if your advisor:
- Emphasized high income with little risk
- Failed to explain lock-up periods or redemption limits
- Recommended a large allocation to alternative investments
- Did not provide or review the prospectus
What Regulators Say About Non-Traded REITs
Regulators have consistently warned investors about:
- Liquidity constraints
- Valuation challenges
- High commissions and conflicts of interest
These concerns highlight the importance of fully understanding the risks before investing.
Securities Fraud Investigations Involving Non-Traded REITs
The White Law Group has investigated claims involving various non-traded REITs, including:
Many cases involve allegations of:
- Unsuitable recommendations
- Misrepresentation of risks
- Failure to disclose fees and liquidity restrictions
Help for Investors Who Lost Money in Non-Traded REITs
If you suffered losses after investing in a non-traded REIT, you may be able to recover your losses through FINRA arbitration.
The White Law Group represents investors nationwide and offers:
- Free, no-obligation consultations
- Representation on a contingency fee basis
- Extensive experience handling securities fraud claims
- Over 800 FINRA arbitration cases handled
Call 888-637-5510 or contact us online to discuss your case.
Frequently Asked Questions
Are non-traded REITs safe investments?
Non-traded REITs are generally considered higher-risk, illiquid investments. While they may offer income potential, they are not suitable for all investors—particularly those who need access to their funds.
Why are non-traded REITs considered illiquid?
Because they are not traded on public exchanges, investors typically cannot sell shares freely. Redemption programs are often limited and may be suspended during periods of high demand.
Can I recover losses from a non-traded REIT investment?
Yes, investors may recover losses if their financial advisor recommended the investment improperly, misrepresented the risks, or failed to consider suitability. Claims are typically pursued through FINRA arbitration.
Final Thoughts
Non-traded REITs are complex investment products that may not be appropriate for many retail investors. Before investing, it is critical to understand the risks, fees, and limitations—and to ensure the investment aligns with your financial goals.
If you believe you were improperly advised to invest in a non-traded REIT, speaking with a securities attorney can help you understand your rights and potential recovery options.
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