Regulators considering new rules to protect REIT investors

Guidelines would rein in risks associated with non-traded real estate investment trusts
August 27, 2014 02:10PM

Non-traded real estate investment trusts could soon face higher regulatory hurdles.

The North American Securities Administrators Association is preparing to introduce guidelines that would place new limits on how non-traded REITs raise money and distribute dividends. The guidelines, if adopted, would also expose independent brokerages that market the REITs to enforcement actions. Last year, investment in non-traded REITs soared to $19.6 billion as investors were attracted by high dividends and stable share prices. The regulators’ guidelines aim to rein in risks associated with those returns.

One of 33 guidelines under consideration would prohibit or limit non-traded REITs from paying dividends out of investor money, rather than from returns on real estate assets under management, the Wall Street Journal reported.

Another would standardize across all 50 states the percentage of an individual investor’s net worth that can be invested in non-traded REITs.

The Journal points to the case of F. Jay Shields, who has taken legal action against the New York brokers who advised his late father to place 45 percent of his investible assets in a non-traded REIT that listed at a discount when it went public as Columbia Property Trust last year. The Shields estate lost about $75,000 in the process. [WSJ]Tom DiChristopher