Decline of Non-traded REITs

There are a number of reasons why sales of non-traded REITs declined from nearly $10 billion in 2015 to $4.5 billion in 2016.

First of all, FINRA’s new industry rule 15-02 requires pricing transparency for investors. Firms that sell non-traded REITs are required to disclose some key aspects of the investment, including: that the securities are not listed on a securities exchange; that the securities are generally illiquid; and that, even if a customer is able to sell the securities, the price received may be less than the per share estimated value provided in the account statement.

Secondly, The Department of Labor’s new fiduciary rule requires brokers and advisers to act in their clients’ best interest when giving retirement advice. Nontraded REITs are typically sold to retirees as a way to generate income. Some broker-dealers did away with commissions on clients’ retirement accounts this year.

In addition, Donald Trump’s election in November further contributed to a decline. The election and Trump’s attraction to a stronger dollar have helped spur higher rates, meaning, also, higher borrowing costs. That’s a bad thing for REITs, which pay 90% of their taxable income as dividends and thus rely on debt for growth.

What’s next for Non-Traded REITs?

There is much speculation as to what will happen with non-traded REITs in 2017.  Some industry analysts and executives are cautiously optimistic that sales of non-traded real estate investment trusts will bounce back next year.

Other industry players disagree due to the potential fallout for real estate investing caused by an overhaul in the tax code that is sure to be a priority for the new Republican administration. Rising interest rates also make borrowing more expensive, potentially hurting REITs.

The White Law Group is a national securities law firm with offices in Chicago, Illinois and Vero Beach, Florida.  The firm represents investors throughout the country in FINRA arbitration claims against their brokerage firm.

For a free consultation with a securities fraud attorney please call 888-637-5510. For more information on The White Law Group, visit www.whitesecuritieslaw.com.