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.
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 several Behringer Harvard REITs suffered huge losses, several brokerage firms stopped selling them. Those brokers remain responsible for these losses if they improperly recommended the Behringer REITs to clients.
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.”
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?
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.