Non-Traded REITs: 10 Risks Your Broker May Not Disclose

Non-Traded REITs: 10 Risks Your Broker May Not Disclose

Key Takeaway: Non-traded REITs are often marketed as safe, income-generating real estate investments — but they carry 10 critical risks that brokers frequently fail to disclose, including illiquidity, high fees, inflated valuations, and conflicts of interest. Major non-traded REITs have collapsed, destroying billions in investor wealth. If you were sold a non-traded REIT without full disclosure of these risks, you may have a FINRA arbitration claim against the broker-dealer who recommended it. Call 1-888-885-7162 for a free consultation.

Non-traded REITs are often sold to investors as safe, income-generating real estate investments. But behind the 6–7% promised yields lie hidden risks that brokers routinely fail to disclose: locked-up money for 7+ years, declining valuations, and high fees that eat into your returns. If your broker recommended a non-traded REIT without explaining these risks, you may have a claim to recover your losses.

What Are Non-Traded REITs?

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. Publicly traded REITs are listed on stock exchanges and can be bought and sold like any other stock.

Non-traded REITs, by contrast, are not listed on any public exchange. They are sold directly to investors — often through broker-dealers and financial advisors — and have no public market for resale. They’re typically marketed as a way to earn steady dividend income from real estate without the volatility of the stock market.

That pitch sounds appealing, especially to retirees and conservative investors. But the reality is that non-traded REITs carry significant hidden risks that make them far more dangerous than most investors realize.

Non-traded REITs are among the most commonly mis-sold investment products in the financial industry. Brokers earn commissions of 5% to 10% or more for selling them — an incentive that can cloud their judgment about whether the product is actually right for you.

If a broker recommended a non-traded REIT without fully explaining the risks, your retirement savings may be in jeopardy. Call 1-888-885-7162 or contact us online for a free consultation with an experienced securities attorney.

Risk #1: Illiquidity — Your Money Is Trapped

The single most dangerous feature of non-traded REITs is their illiquidity. Unlike publicly traded REITs, which you can sell at any time during market hours, non-traded REITs have no public market.

This means:

• You cannot sell your shares when you want to — or need to
• Redemption programs, if they exist at all, are limited, discretionary, and frequently suspended during periods of financial stress
• You may be locked into the investment for years — sometimes indefinitely — until the REIT lists on an exchange, is liquidated, or merges with another entity
• If you need your money for an emergency, medical expenses, or living costs, you may simply be out of luck

For retirees who need access to their money, illiquidity isn’t just an inconvenience — it’s a financial trap.

Risk #2: High Fees That Eat Your Returns

Non-traded REITs carry significantly higher fees than publicly traded alternatives. These fees include:

• Upfront selling commissions of 5% to 10% of your investment — meaning for every $100,000 you invest, $5,000 to $10,000 goes to the broker and selling expenses before a single dollar is invested in real estate
• Dealer manager fees of 2% to 3%
• Acquisition fees on properties purchased by the REIT
• Ongoing management fees and administrative costs that continue for the life of the investment
• Organizational and offering costs that can add another 2% to 5%

In total, the all-in cost of a non-traded REIT can consume 15% to 20% or more of your invested capital before the REIT even begins generating returns. This means the REIT’s underlying properties must generate extraordinary returns just for you to break even — and that’s before the REIT’s ongoing expenses.

By comparison, publicly traded REITs typically have expense ratios of 0.5% to 1.5% annually, with no upfront commissions.

These fees don’t just reduce your returns — they can wipe them out entirely. If you weren’t told about the full fee structure, call 1-888-885-7162 or contact us online to discuss your legal options.

Risk #3: Lack of Transparency

Publicly traded companies are subject to rigorous SEC reporting requirements — quarterly filings, annual reports, independent audits, and real-time disclosure of material events. Non-traded REITs have far less stringent reporting obligations:

• Financial reporting may be infrequent and delayed
• Property valuations may be based on internal estimates rather than independent appraisals
• Investors often have limited visibility into the REIT’s actual financial condition
• Conflicts of interest between the REIT’s external manager and investors may not be clearly disclosed

This lack of transparency makes it nearly impossible for investors to accurately assess the health of their investment — or to spot problems before it’s too late.

Risk #4: Inflated Valuations

One of the most insidious risks of non-traded REITs is inflated share values. Because non-traded REITs are not subject to the discipline of a public market, their reported share prices may not reflect reality:

• Initial share prices are typically set at $10 or $25 per share, but this price often includes the hefty upfront commissions and fees — meaning the actual value of your investment is immediately less than what you paid
• Share valuations are often determined by the REIT’s management or affiliated appraisers, creating a conflict of interest
• When non-traded REITs eventually undergo independent valuation or list on an exchange, the share price frequently drops dramatically — sometimes by 30% to 70% or more
• FINRA has warned that non-traded REIT distributions may include return of principal, which can artificially inflate the apparent yield while eroding the investment’s value

This means the statement showing your REIT is worth what you paid for it may be misleading. The real value could be far less.

Risk #5: Distribution Cuts — When the Income Disappears

Many investors buy non-traded REITs for the consistent monthly or quarterly distributions. But these distributions are not guaranteed:

• Non-traded REITs can reduce or eliminate distributions at any time — and many have done exactly that
• During the COVID-19 pandemic, numerous non-traded REITs suspended or reduced distributions, leaving income-dependent investors without the cash flow they depended on
• Some distributions are funded from borrowed money, offering proceeds, or return of capital rather than actual rental income — a practice that is unsustainable and effectively returns your own money to you while calling it “income”
• When distributions are cut, the share value typically declines as well, compounding your losses

If you were counting on non-traded REIT distributions to fund your retirement, a distribution cut can be devastating.

Don’t let a distribution cut catch you off guard. Call 1-888-885-7162 or contact us online to understand your rights.

Risk #6: Share Value Declines

As mentioned under inflated valuations, the actual value of non-traded REIT shares tends to decline over time as the true economics become apparent:

• When non-traded REITs undergo their initial independent valuation, the share price typically drops — sometimes dramatically
• Blackstone Real Estate Income Trust (BREIT) and other institutional non-traded REITs have seen their valuations adjusted downward during market downturns
• Smaller, retail-focused non-traded REITs have experienced even more severe declines
• Investors who believed they were buying a stable, income-generating asset often discover that their principal has been significantly eroded

The gap between what you paid and what your shares are actually worth represents real money lost — money you may be able to recover through legal action.

Risk #7: Limited Redemption Programs

Some non-traded REITs offer share redemption programs that allow investors to request the repurchase of their shares. However, these programs are extremely limited:

• Redemption programs are discretionary — the REIT can suspend them at any time
• Many programs limit the dollar amount or percentage of shares that can be redeemed in any given period
• Redemption prices are often set below the reported share value
• During periods of financial stress — precisely when investors most need access to their money — redemption programs are most likely to be suspended
• Even when active, redemption requests may be denied or only partially fulfilled

A redemption program is not a guarantee of liquidity. It’s a promise that can be — and often is — broken.

Risk #8: Conflicts of Interest

Non-traded REITs are rife with conflicts of interest that work against investors:

• The external advisor/manager that operates the REIT is often an affiliate of the REIT’s sponsor, creating an incentive to maximize fees rather than investor returns
• Property acquisitions may be purchased from affiliates at above-market prices
• The REIT may overpay for management services provided by related parties
• Distribution reinvestment plans (DRIPs) may be designed to keep investor capital in the REIT even when the investment is performing poorly
• The broker-dealer selling the REIT has a direct financial incentive (commissions) to recommend the product regardless of suitability

These conflicts mean that the people managing your money may have financial incentives that don’t align with your best interests.

With 95 years of experience identifying broker misconduct, our firm can help you determine whether conflicts of interest contributed to your losses. Call 1-888-885-7162 or contact us online for a free consultation.

Risk #9: No Public Market — No Price Discovery

The absence of a public market for non-traded REIT shares creates a fundamental problem: no real-time price discovery.

• Publicly traded REITs are priced every second the market is open, based on the collective judgment of thousands of investors and analysts
• Non-traded REITs have no such mechanism — their reported share values are essentially management’s estimate, not a market-determined price
• When non-traded REITs eventually list on an exchange, the market price almost always falls below the previously reported value
• The lack of a public market also means there’s no way to compare your REIT’s performance against peers in real time

Without market pricing, you’re essentially flying blind — trusting that the REIT’s management is reporting accurate values when they have every incentive to keep the reported price high.

Risk #10: High Broker Commissions Drive Mis-selling

The final — and perhaps most fundamental — risk is the commission structure that drives the sale of non-traded REITs to inappropriate investors.

• Brokers earn commissions of 5% to 10% on non-traded REIT sales — far more than the 1% or less they earn on most other investment products
• This massive commission differential creates a powerful incentive for brokers to recommend non-traded REITs over more suitable, lower-cost alternatives
• FINRA has repeatedly sanctioned firms for selling non-traded REITs to investors for whom they were unsuitable, including elderly and conservative investors
• The high commission structure means that a significant portion of your investment goes to the broker’s pocket, not into real estate

When a broker recommends a product that earns them 10 times the commission of an alternative, you have to ask: is this recommendation in my best interest, or theirs?

If you suspect your broker recommended a non-traded REIT because of the commission — not because it was right for you — call 1-888-885-7162 or contact us online. We offer free consultations and work on contingency, meaning you pay nothing unless we recover money for you.

Major Non-Traded REIT Failures

The risks described above aren’t theoretical. They’ve played out in devastating real-world failures that have destroyed billions in investor wealth:

NorthStar Healthcare Income, Inc.

NorthStar Healthcare Income was a non-traded REIT that invested in healthcare properties. The REIT’s share value collapsed, and in 2023, the company’s board approved a merger at a fraction of the original investment value. Investors who paid $10 per share received approximately $2.45 per share in the merger — a loss of roughly 75%.

Griffin-American Healthcare REIT / Peakstone Realty Trust

Originally known as Griffin-American Healthcare REIT II, this non-traded REIT rebranded as Peakstone Realty Trust and eventually listed on the NYSE at a dramatically reduced share price. Investors experienced massive declines in value, and the REIT’s distributions were cut.

Carter Validus Mission Critical REIT

Carter Validus invested in data centers and healthcare facilities but faced severe financial difficulties. The REIT’s share value declined dramatically, and investors experienced significant losses.

InPoint Commercial Real Estate Income

InPoint suspended its distribution reinvestment plan and share redemption program, leaving investors trapped in a declining investment with no exit.

Other Notable Failures

• United Development Funding (UDF) — executives were charged with fraud; the REIT’s value collapsed
• American Finance Trust (AFIN) — listed on Nasdaq at a significant discount to its reported value, causing losses for investors who had been holding shares at the inflated non-traded price
• Cole Credit Property Advisors — experienced significant value declines upon listing

These failures are not anomalies. They are the predictable consequence of a product structure that misaligns the interests of sponsors, brokers, and investors.

Are Non-Traded REITs Suitable for Retirees?

For most retirees and conservative investors, non-traded REITs are unsuitable. The combination of illiquidity, high fees, inflated valuations, and distribution uncertainty makes them inappropriate for investors who:

• Need regular access to their money
• Rely on stable income for living expenses
• Cannot afford to lose a significant portion of their principal
• Have a low risk tolerance
• Were not fully informed of the total costs and risks

If your broker recommended a non-traded REIT and you fit any of these profiles, the recommendation may have been unsuitable — and you may have a legal claim.

Recovery Options for Non-Traded REIT Investors

If you’ve suffered losses in a non-traded REIT, you may have options for recovery through FINRA arbitration:

• Unsuitability claims — if the REIT was inappropriate for your financial situation
• Misrepresentation claims — if your broker failed to disclose material risks or fees
• Due diligence failures — if the selling firm failed to investigate the REIT adequately
• Supervisory failures — if the firm failed to supervise the broker’s recommendations

Our firm has a 98% success rate in securities arbitration and 95 years of experience fighting for investors. As former Wall Street defense lawyers, we know both sides of the table. We offer free consultations and work on contingency — you pay nothing unless we recover money for you.

Call 1-888-885-7162 or contact us online today.

Frequently Asked Questions

What is a non-traded REIT?

A non-traded REIT is a real estate investment trust that is not listed on any public stock exchange. These products are sold through broker-dealers and have no public market for resale, making them highly illiquid. They typically charge much higher fees than publicly traded REITs and carry significant risks that are often not fully disclosed to investors.

Are non-traded REITs safe investments?

Non-traded REITs are not safe investments for most retail investors, despite being marketed as stable income products. They carry significant risks including illiquidity, high fees, inflated valuations, distribution cuts, and conflicts of interest. FINRA has repeatedly warned about the dangers of non-traded REITs and sanctioned firms for selling them to unsuitable investors.

Why do brokers recommend non-traded REITs?

Brokers earn commissions of 5% to 10% on non-traded REIT sales — far more than the commissions available on most other investment products. This creates a powerful financial incentive to recommend non-traded REITs even when they may not be in the client’s best interest. This conflict of interest is one of the primary reasons non-traded REITs are so commonly mis-sold.

Can I recover losses from a non-traded REIT investment?

You may be able to recover losses through FINRA arbitration if your broker failed to disclose the risks, recommended an unsuitable investment, or made misleading statements about the REIT. The best way to determine whether you have a viable claim is to consult with an experienced securities attorney.

What non-traded REITs have failed?

Several major non-traded REITs have experienced severe losses or failures, including NorthStar Healthcare Income (75% loss on merger), Griffin-American Healthcare REIT / Peakstone Realty Trust, Carter Validus, InPoint Commercial Real Estate Income, United Development Funding, and American Finance Trust. These failures have collectively destroyed billions in investor wealth.

How much does it cost to pursue a non-traded REIT claim?

Our firm handles non-traded REIT cases on a contingency fee basis. You pay no attorney fees unless we recover money for you. Your initial consultation is completely free, and we evaluate your case at no cost and no obligation.

This article is for informational purposes only and does not constitute legal advice. Past results do not guarantee future outcomes.