As many brokers and other investment professionals know, investing in a REIT, or Real Estate Investment Trust, is something that’s best left to experienced, sophisticated investors. There’s a reason for that, and some recent activities have proven, once again, that illiquid REITs are definitely not for amateurs.
There are two types—publicly traded and nontraded. While both file papers with the SEC, file regular reports and must return 90% to shareholders, there are obvious differences. Of course, one is traded publicly, and the other isn’t. The idea is that eventual dividends come from the real estate that it’s invested in.
A nontraded REIT is illiquid, so investors are taking greater risk. You may also have to sell at a discount, reducing what you get back from your investment. Private or nontraded REITS may not be suitable for anyone interested in short-term investments, conservative investors or those unwilling to take the risks.
American Finance Trust Inc., (AFIN), a nontraded REIT, is one of those that had offered great promise at its inception before the 2008 crash. Just this week, though, they went public. AFIN is now listed on NASDAQ, and selling around $14.80 per share. (The company prospectus is available here.) It traded at $15 per share on its first day of trading, July 19th.
That’s significant, since brokers originally sold AFIN for $25 per share, more than 40% more than it sells for now. AFIN’s original initial public offering in 2013 saw the company raise $1.6 billion in investor equity, all at $25 per share. This NASDAQ listing not an IPO, but a “phased liquidity offering” for its non-traded investors.
AFIN and other REITS like them were premiere investment vehicles before 2008, with brokers promising the great returns of real estate and annual returns promised in the area of 6% to 7%. Brokers also made large commissions selling REITS. When the bottom dropped out in 2008, REITS lost value quickly. About $1 billion of AFIN’s equity has simply degraded.
FINRA’s new 15-02 rule requires more transparency of illiquid securities. The customer’s actual value of the REIT will be itemized in statements along with the high amount of commissions paid. When the Labor Department’s new fiduciary rule was introduced, commissions were cut down, and now brokers aren’t interested in selling them at all. However, with the demise of the fiduciary duty rule, these high commission products may return.
Brokers are now quite reluctant to even discuss REITS, much less invest in them. Without the 7% commissions attached to them, brokers aren’t interested. But for those who have invested in AFIN or other companies like them, many investors are learning why these investments were unsuitable.
Are You An AFIN Investor?
If you’ve invested in AFIN, or other non-traded, illiquid REITS and have questions about your account, contact us for a free consultation. Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. Most cases handled on a contingent fee basis. This means that you won’t any pay legal fees unless we are successful. Call us toll free at 800-975-4345, or use our online contact form to get in touch.