What you were sold
A real estate investment trust owns income-producing property and pays most of its income out as distributions. A publicly traded REIT does that on a stock exchange, where you can sell your shares any business day at a price everyone can see. A non-traded REIT does the same thing without the exchange. Shares are sold by brokers, usually at a fixed price, in an offering that can run for years; there is no market for them; and the only ways out are a limited redemption program run by the REIT itself, a “liquidity event” years in the future that the sponsor controls, or a secondary buyer who will pay a steep discount.
They were, and are, sold heavily to retirees as “income” investments, often described as a conservative alternative to bonds. The pitch is a 6 or 7 percent distribution and a share price that never appears to move. Both features are exactly the problem.
Why you cannot sell
There is no exchange, so there is no buyer unless the REIT or a secondary firm chooses to be one. Redemption programs are typically capped at a small percentage of outstanding shares per year, priced at a discount, and can be suspended entirely — which sponsors do precisely when investors most want out. Secondary-market buyers exist but pay a fraction of the stated value. Investors who bought at $10 a share are commonly offered $4 to $6 by the only buyers available, if there are any.
For an American abroad, the illiquidity compounds. A brokerage closing your account cannot transfer a non-traded REIT to a firm that does not carry it, and cannot sell it for you either. The position sits on a statement, at a number that may bear no relation to what anyone would pay.
Where the distributions really came from
The 6 or 7 percent distribution is the reason most people bought. In many non-traded REITs, especially during the offering period, a substantial part of that distribution was not rental income at all. It was money borrowed, or money from new investors, or simply a return of your own capital paid back to you — labeled as a distribution. The share price did not fall to reflect it because there was no market to make it fall. When the REIT eventually had to publish a real net asset value, investors discovered that the “stable” $10 had been worth $7, or $5, for years.
FINRA changed the account-statement rules in 2016 to require that statements show a value reflecting the offering costs and, later, an appraised value, in part because of this. The statements before that date are not evidence of what the shares were worth.
When the recommendation was the problem
Real estate can lose value, and a decline in the underlying properties is not, by itself, anyone’s fault. The claim is about whether the product should have been recommended to you at all. FINRA Rule 2111 requires a reasonable basis to believe a recommendation fits the customer’s age, liquidity needs, and risk tolerance, and Regulation Best Interest requires that the costs and alternatives be considered. Non-traded REITs historically carried up-front loads of 10 percent or more — meaning $1 of every $10 went to the seller before a single property was bought — and were sold under concentration limits that firms themselves frequently ignored. The recurring facts in a retiree’s case:
- The product was described as “conservative,” “like a bond,” or “income with no volatility”
- You told the broker you would need access to the money within a few years
- More than 10 percent of your liquid net worth went into one REIT, or into several from the same sponsor
- The distribution’s sources — borrowing, offering proceeds, return of capital — were never explained
- The broker’s commission and the sponsor’s fees were never itemized
- The REIT was bought with rollover money at retirement, or with money from a forced account transition
What a claim looks like
These cases are built from the subscription agreement (which records what the broker said your net worth and objectives were), the prospectus, the firm’s own concentration and suitability guidelines, and your statements. Damages are generally measured by what you paid less what the shares are actually worth or what you received on selling them, plus what a suitable investment would have earned instead, adjusted for the distributions you did receive. Panels may add interest and, where permitted, costs and fees. No result is promised in any case.
The claim is in FINRA arbitration against the brokerage that sold the shares, and none of it requires you to be in the United States. Do not sell into the secondary market before the review; the price you accept becomes part of the damages calculation, and a sale at a deep discount made in a hurry can be used against you.
Timing
FINRA’s six-year eligibility rule runs from the event, which a firm will argue is the purchase date. Non-traded REITs are often bought years before the loss becomes visible, so the deadline is a real risk in these cases. Later recommendations to hold, later purchases of additional shares, and the date the REIT published a real valuation can all matter. Send the documents as soon as you suspect the number on the statement is not real.
Key takeaways
If you remember six things
- A non-traded REIT has no market; the only exits are a capped redemption program, a discounted secondary sale, or a liquidity event the sponsor controls.
- The distribution that sold the product was often partly borrowed money, new investor money, or your own capital.
- Pre-2016 statement values did not reflect what the shares were worth.
- The claim is about the recommendation — a 10 percent load, illiquidity, and concentration sold to a retiree who needed access.
- Do not sell at a deep discount before the review; it affects the damages calculation.
- The six-year rule runs from the purchase. Do not wait for the “liquidity event.”
Questions
Asked most often
The REIT is still paying distributions. Do I have a claim?
Possibly. A continuing distribution does not mean the shares are worth what the statement says, and it does not make an illiquid product suitable for a retiree who needed access. The recommendation is judged on your situation at the time, not on whether the checks are still arriving.
The broker says it is a long-term investment and I just need to wait for the liquidity event.
That is the standard answer. Liquidity events can be years away, are controlled by the sponsor, and often happen at a value well below what you paid. The suitability question — whether a product you cannot exit should have been sold to you at all — does not depend on waiting.
Can my brokerage transfer the REIT to a new firm now that I live abroad?
Only if the new firm carries and will hold it, which many will not. A closure letter that gives you a deadline to move an account holding a non-traded REIT is a situation to have reviewed before the deadline passes, not after.