Nontraded Behringer Harvard Opportunity REIT I Implodes
Investors who purchased the Behringer Harvard Opportunity REIT I at the offering price of $10.00 per share in 2009 learned at the end of 2011 that the value is approximately $4.12 per share – a loss of over 58 percent of their investment. That includes a 46 percent drop from $7.66 at the end of 2010. (See “Value of popular nontraded REIT hammered,” InvestmentNews).
According to the chief executive of Behringer Harvard, the REIT’s manager, as of January 12, 2012, the real property industry has taken a beating, the REIT is shedding assets, its valuation will do down in the long run, and the huge decline is the result of a “deep decline” in six real estate properties in the portfolio.
Between December, 2010, and September, 2011, the REIT’s total assets declined from $697.6 to $580 million and it reported a net loss of $83 million. The REIT said it will cut its advisory fee by $1 million per year.
This news about Behringer Harvard follows increasing regulatory scrutiny of nontraded REITs, in particular, how they are valued.
Many investors were led to believe that the share price of their nontraded REIT is stable, when, in fact, it only appears to be because the manager simply reports it at par value regardless of the deterioration in the underlying portfolio of assets. In addition, the initial pricing is typically not net of fees and other expenses, which actually results in a dollar-for-dollar loss at the outset as those dollars are not invested.
The Financial Industry Regulatory Authority (FINRA) issued a proposed rule last year that would require nontraded REIT sellers to deduct their fees, commissions and other offering expenses from the offering price.
FINRA has issued an “Investor Alert” on the subject of non-traded REITS, warning of high upfront fees, illiquidity, lack of transparency, poor due diligence by selling brokers, and other problems.
FINRA also recently fined Atlanta-based Wells Investment Securities $300,000 for misleading investors about its Timberland non-traded REIT, and filed a disciplinary proceeding against David Lerner Associates for misleading investors by mispricing its Apple REITs, among other things.
Page Perry, LLC is investigating claims involving a number of nontraded REITS, including those marketed by Behringer Harvard. According to J. Boyd Page, senior partner of the investor law firm Page Perry LLC, "Behringer Harvard is one of the first of many nontraded REITs that we expect to see implode in coming months."
Page Perry, LLC is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.
