REIT Lawyer

A REIT lawyer at Weltz Law represents investors who lost money in real estate investment trusts sold by a broker, especially non-traded REITs. These products often carry high fees, limited ways to sell, and values that can fall far below the purchase price. When a registered broker made the sale, the dispute may belong in FINRA arbitration.

Our REIT lawyers work inside the FINRA dispute resolution forum on behalf of investors nationwide. FINRA stands for the Financial Industry Regulatory Authority. It oversees brokerage firms and runs the arbitration system for most disputes between investors and their brokers.

This page is part of our alternative investment attorney section, within our broader securities lawyer practice.

What Is a REIT, and How Do REITs Work?

A real estate investment trust, or REIT, is a company that owns or finances income-producing real estate. Investors buy shares and receive a portion of the rental or interest income. REITs must pay out most of their taxable income to shareholders, which is why they often offer high yields.

REITs can own almost any kind of property. Apartments, offices, shopping centers, warehouses, hotels, hospitals, and senior housing are all common.

The idea is appealing. You get the income of real estate without having to buy a building, find tenants, or fix a roof.

But the way a REIT is structured makes a big difference. Some trade on a stock exchange every day. Others cannot be sold at all for years.

What Is the Difference Between Traded, Non-Traded, and Private REITs?

Publicly traded REITs are listed on a stock exchange and can be sold any trading day. Non-traded REITs are registered with the SEC but do not trade on an exchange. Private REITs are not registered at all. Each step away from a public market means less information and fewer ways out.

Here is how the three types compare:

• Publicly traded REITs: Prices change daily, fees are usually lower, and investors can sell easily.
• Non-traded REITs: Sold by brokers, often at $10 or $25 per share, with high upfront fees and limited buyback programs.
• Private REITs: Sold through private placements to accredited investors, with even less disclosure. See our private placement attorney page.

Most investor claims involve non-traded and private REITs. Those are the products brokers sell directly, often with large commissions attached.

Why Are Non-Traded REITs So Risky for Investors?

Non-traded REITs combine high upfront fees with little or no ability to sell. Distributions may not be covered by real income, and share values are hard to judge. Many investors have watched their shares fall far below what they paid, with no way to get out.

Fees come first. Upfront commissions and offering costs on many non-traded REITs have run around 10% of the purchase price. That money never reaches real estate.

Liquidity is next. Investors can usually sell only through limited company buyback programs. Those programs can be cut back or shut down when the REIT needs cash.

Then there are distributions. Some non-traded REITs have paid distributions that exceeded what their properties earned. That gap can be filled with borrowed money or even new investor money, which slowly eats away at value.

Finally, share values are estimates. For years, statements showed many non-traded REITs at or near the original price. When real values were finally reported, many investors learned they had lost far more than they thought.

How Do REITs Become REIT Fraud?

REIT fraud happens when a sponsor or broker hides or misstates key facts. That can include inflating property values, hiding fees, paying distributions from new investor money, or self-dealing by managers. Brokers may also misrepresent a REIT as safe, liquid, or guaranteed.

Not every REIT loss is fraud. Real estate markets fall. Interest rates rise. Tenants leave.

But some losses come from conduct, not markets. A sponsor might buy properties from its own affiliates at inflated prices. A broker might tell a retiree a REIT is "like a bond." Those are different problems from a normal market decline.

Our page on types of REIT fraud covers the most common schemes in more detail.

What Are the Warning Signs of a Problem With Your REIT Investment?

Warning signs include cut or suspended distributions, a sharp drop in estimated share value, and buyback programs that close or shrink. Unclear financial information and mergers at prices far below what you paid are others. Pressure from a broker to buy quickly is another red flag.

Distributions are often the first clue. A REIT that suddenly cuts its payout may have been paying more than it earned.

Next, watch the estimated value on your statements. A big markdown usually means the properties are worth much less than the price you paid.

Buyback limits matter too. If the REIT stops honoring redemption requests, you may be stuck for years.

Finally, pay attention to mergers or sales. A deal at a fraction of the original price can lock in a loss. Our NorthStar Healthcare REIT lawyer page shows how that played out for one non-traded REIT.

Why Do Brokers Push Non-Traded REITs?

Non-traded REITs have paid brokers some of the highest commissions in the industry. That pay creates a strong incentive to sell them, even to clients they do not fit. Brokers often pitched them as stable income with low volatility, a story that left out the real risks.

The "low volatility" pitch was partly an illusion. Non-traded REITs did not swing in price because they did not trade. Their values were simply not updated often.

That made them look safer than they were. An investor might see a steady $10 per share on statement after statement while the underlying properties lost value.

When Can REIT Investors Bring a FINRA Claim?

REIT investors may be able to bring a FINRA claim when a registered broker or brokerage firm recommended or sold the REIT. The claim focuses on the broker's conduct. That can include an unsuitable recommendation, misleading statements about risk, too much money in REITs, or poor supervision by the firm.

Claims tied to REIT losses may include unsuitable investment recommendations, misleading information, over-concentration, and failure to supervise.

A falling share value alone does not create a claim. The question is whether the broker's recommendation fit the investor, and whether the risks were explained honestly.

How Do Concentration Limits Apply to Non-Traded REIT Sales?

Many states and brokerage firms limit how much of a client's net worth can go into non-traded REITs and similar products. These limits exist because the products are risky and hard to sell. A broker who exceeds them, or works around them, may face a claim.

Picture a retired nurse with $500,000 in savings. Her broker places $200,000 across four non-traded REITs. Each sale may look small on its own. Together, they lock up 40% of her savings in products she cannot sell.

Firms are supposed to watch total exposure, not just each sale. When they do not, a failure to supervise claim may come into play. When older investors are involved, it may also raise concerns about financial elder abuse.

What Due Diligence Must Brokerage Firms Do Before Selling a REIT?

Brokerage firms are expected to review a non-traded or private REIT before offering it. That includes the sponsor's history, fees, debt, how distributions are funded, conflicts of interest, and how the shares will be valued. Firms should not rely only on the sponsor's sales materials.

A firm's review may be the only real check on a private or non-traded deal. Asking whether distributions come from real income is one of the most important questions.

The suitability and best interest standards apply to every recommendation. Learn more about investment product due diligence.

How Does the FINRA Six-Year Window Apply to REIT Claims?

The FINRA eligibility rule generally bars claims filed more than six years after the event that caused the dispute. For REITs, that is often the purchase date. Non-traded REITs can hide problems for years, so time can run short. State deadlines may also apply.

Many investors do not learn the true value of their REIT shares until a markdown, a merger, or a liquidation. By then, early purchases may be close to or past the six-year mark.

Our REIT lawyers check every purchase date early in a review.

What Damages Can a FINRA Panel Consider in a REIT Claim?

A FINRA panel may consider the money an investor lost, what that money might have earned in suitable investments, interest, and costs. The panel decides which measures fit the facts. No one can say in advance what a panel will award.

Out-of-pocket damages compare what went in with what came back, including distributions and any sale or merger proceeds. Well-managed account damages ask what the money would have earned in investments that matched the investor's goals.

The prospectus, the broker's statements, and the firm's due diligence file all shape the arguments our FINRA arbitration attorneys can make.

What Records Should You Gather for a REIT Lawyer?

Gather the prospectus or offering memorandum, subscription agreement, account statements, distribution records, any merger or liquidation notices, and every communication with your broker. These records show what you paid, what you received, and how the REIT was described.

The subscription agreement matters a great deal. It lists the income, net worth, and goals the broker recorded for you. Those numbers may not match your real situation.

Emails, texts, and marketing pieces can show whether the REIT was pitched as safe income. If something is missing, the brokerage firm keeps its own records, and many can be requested during discovery.

How Do Our REIT Lawyers Handle a FINRA Claim?

Our REIT lawyers start with the sale. Which REITs did you buy, who recommended them, what were you told, and how much of your savings went in? Those answers shape whether a FINRA claim fits and which claims to bring.

Next, our team compares the investments with your age, goals, income needs, and other holdings. The review also checks state and firm concentration limits.

If the facts support a claim, our FINRA arbitration attorneys draft and file the Statement of Claim. That is the written filing that starts a FINRA case.

Discovery follows. Our team asks for the firm's due diligence files, product approval records, and the broker's commission data.

If the case reaches a final hearing, our REIT lawyers present the evidence and witnesses to the panel. No one can predict how a panel will rule. Our page on FINRA arbitration explains each stage.

Talk With a REIT Lawyer at Weltz Law

Did a broker sell you a non-traded or private REIT that cut its payments, lost value, or locked up your money? It may be worth a closer look. A conversation with a REIT lawyer can help you understand what options may exist in FINRA arbitration.

Our REIT lawyers represent investors, retirees, families, and trusts nationwide. Bring your offering documents, statements, and any messages from your broker. Contact Weltz Law today to talk through what happened.