Problems Abound for Behringer Harvard REITs
Behringer Harvard, which sold $5.5 billion of nontraded REITS through a network of independent broker dealers, is being rejected by some broker dealers that have sold its REIT products in the past. This development is not surprising, since the Behringer Harvard Opportunity REIT I has declined 46 percent in value, and its Short-Term Opportunity Fund I LP has lost over 90 percent, and two of its executive marketers have departed (“Tough times for Behringer Harvard,” InvestmentNews).
American Portfolios Financial Services Inc. reportedly ended its relationship with Behringer Harvard because of concerns over how dividends were being paid. “We felt that the dividend, which was among the largest in the space, was returning too much [of clients'] principal,” Lon Dolber, chief executive of American Portfolios Financial Services, was quoted as saying. That is a matter of concern to regulators as well, who have warned investors that many nontraded REITs’ dividends consist of a return of investor capital or borrowed funds, or both, rather than income from the underlying assets.
Regulators have also warned investors that nontraded REITs are often valued at the price paid by investors even though fees and expenses are taken off the top, resulting in an immediate loss of value for the investor, and the value of the underlying assets has in many cases deteriorated. That has become a concern of selling brokers as well.
Securities America, Inc. has cut ties with Behringer Harvard, according to the article. American International Group’s Advisors (FSC Securities Corp., Royal Alliance Associates Inc. and SagePoint Financial Inc.) have also reportedly stopped selling Behringer Harvard’s Multifamily REIT.
“Broker-dealers don't have confidence in Behringer Harvard,” Tony Chereso, president of FactRight LLC, a due-diligence firm, was quoted as saying, adding: “We've had a similar perspective and cautioned some of the broker-dealers we work [with] to look at the selling agreements” with Behringer Harvard.
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