Regular visitors to this website know we watch nontraded REITs very closely. Although the industry attracts over a billion dollars per month in new money, nontraded REITs are not suitable for most ordinary investors. There are several reasons for our opinion including their lack of transparency and liquidity. Case in point? Monogram Residential Trust, formerly named the Behringer Harvard Multifamily REIT I.
Prior to the real estate crash of 2008, Behringer Harvard was a big name in REITs – real estate investment trusts. The events of 2008, however, showed just how volatile Behringer Harvard investment products were
Because these REITs are nontraded, it is almost impossible to accurately predict their value. Typically sold at $10 per share, until they can be sold their real value is anyone’s guess. Last year the former Behringer Harvard REIT I, now known as Tier REIT, Inc., had a liquidity event. The shares sold for just $4.20 each, a loss of over half their value. Adding to the frustration, many investors were forced to hold their investment for years before they could sell.
An investor in the Behringer Harvard Short-Term Opportunity Fund claimed that her $50,000 investment dropped to $2000 for a loss of 96%! Her broker was Dennis Freeman. [There are three people named Dennis Freeman who are or were recently stockbrokers – her broker was Dennis Lester Freeman.]
We obtained from FINRA BrokerCheck the record of Dennis Freeman. He managed to work at 14 different firms during his career. It appears he was terminated for cause from one.
In 2012, Behringer Harvard REIT 1 was named as a defendant in a class action brought by investors.
If stockbrokers were doing their jobs properly, none of these lawsuits or customer complaints should have occurred. In our experience, however, brokers are so interested in earning the 6% or 7% commissions these nontraded REITs often pay that they neglect to tell investors just how volatile they are or how they could be stuck for five or more years before they can liquidate. For someone planning on retiring or a struggling family who needs cash for a medical emergency, learning you can’t sell can be devastating/
Monogram Residential Trust (Behringer Harvard Multifamily REIT I)
The value of the Monogram Residential Trust REIT remains unknown. Discussions are underway to list the shares on a national exchange. That will allow investors to liquidate and get out but at what price?
Monogram says the shares are worth $10.41 each, although InvestmentNews reports that in a letter to shareholders last week the company indicated that the shares would not likely trade at that price if listed.
After some other Behringer Harvard REITs suffered huge losses, several brokerage firms stopped selling them. Those broker dealers remain responsible for these losses if they improperly recommended the Behringer REITs to clients, something we see all too often.
In response to the InvestmentNews article, one industry member said, “Behringer has been milking clients for fees for the last 8 years, when they should have liquidated most or all of their REITs years ago (even at substantial losses) and returned the capital to clients. Anyone who invests client dollars with BH in any fund, regardless of the name, is committing malpractice.”
Another broker said of Behringer investments that his brokerage firm was peddling,
“At the time when that offering was being sold, the B/D that I was affiliated with considered it as a “Tier 1” investment and that it was suitable for practically everybody . But only because the Wholesaler paid $50,000 to the B/D firm that subsequently bankrolled Bonuses and luxury trips for “certain parties” within B/D management. When it came down to my level … I never got a dime of that Payola. But I got a whole lot of pressure from my OSJ to sell it to Clients. I refused to do so. Now that it is imploding and the B/D might get sued … I say good for them!”
A REIT industry expert claims that the listing of Monogram Residential Trust will be a “good event.” We believe it might be “good” in that people who have been stuck with the investment may finally get the opportunity to sell. The question is what are the shares really worth?
Suitability Rules and Behringer REITS
Stockbrokers are responsible for a client’s REIT losses if the broker improperly recommended the investment to clients. Because these REIT shares are so illiquid and have so many other problems, it is often possible to hold brokers responsible for REIT losses, particularly in non-traded REITs.
Why are brokers responsible?
Stockbrokers and investment advisers are required to make “suitable” recommendations to their customers. Anyone needing quick access to their money shouldn’t be invested in an illiquid product such as a nontraded REIT. These investments can take years to sell and while they are in your portfolio, they are almost impossible to value. Is it worth $10 per share as noted on a monthly statement or is it worth $1.00. It’s hard to know when you can’t find a buyer.
And its not just the brokers who are responsible. Brokerage firms have a legal obligation to properly supervise their agents. They can be held responsible for the mistakes of their brokers.
Lose Money in a Behringer Harvard or Other Non-Traded REIT?
If you lost $100,000 or more in a REIT product of Behringer Harvard / Monogram Residential (or any other nontraded REIT product), we may be able to help you get back your hard earned money. Please visit our nontraded REIT fraud recovery post. Ready to see if you have a case? Contact us online, by email or by phone us 202-800-9791.
There is never any obligation for a consultation. If we take your case, it is on a contingency or “success” fee basis meaning you only pay if we win. We take cases nationwide. In most cases we can resolve the case within 14 months or less of filing.