Then how does one sell non-traded REITs?

[MRM]

I recently obtained a client that has both the Wells and Piedmont units. These came over from the clients previous advisor. However, because I am not a B/D (I am an RIA) these have been kept in a "house account" at Wells. I am currently in the process of having the now publicly traded Piedmont shares transferred.

To make a long story short, I do not see any value in keeping these products at all. I remember a post on the other site mentioning an income stream and long term investment 7-10 years (from a NT REIT supporter) but in this case that gets my clients back to even. I mean to recover from a loss in the double digits, it takes an exponential amount of return. No dividend is going to fix that, unless perhaps if your timeline is over 100 years.

My question is how do I get rid of these? I am assuming that when the publicly traded shares transfer I will be able to sell them but what about the Wells units? I know I cannot make up the losses over night and I am at this projecting a five year recovery but at least it will be in a liquid investment with transparency. Any help out there?

[REIT Wrecks]

I will take an initial shot at this, but to the extent you or others reading this acquire more information, it would be great if you could follow up. I'm sure there are already people reading this that have much more information on Non-Traded REIT sales and secondary markets than I do, so I hope they'll add to my their dimes and quarters to my two cents.

Here are the firms I know of that might be of some help to you (again, I do not work for any of these firms, I don't buy REITs, I don't sell REITs, and I don't own REITs):

* SecondMarket --- Phone 212-669-5920 (Broadly focused on secondary markets for ARS, CDOs, MBS, CMBS, Partnerships, etc.)

* Pacific Partnership Group --- Phone 800-727-7244 (focus on Non-Traded REITs)

* REIT Secondary Exchange --- Phone 602-721-4730 (focus on Non-Traded REITs)

* American Partnership Board --- Phone 800-736-9797 (auctions of Non-Traded REIT shares)

* Madison International --- Phone 212-688-8777 (Broadly focused on Real Estate Partnerships)

* MacKenzie Patterson Fuller --- Phone 925-631-9100 (Focused on Real Estate Partnerships)

In terms of current pricing, I'm assuming your client has Wells II units, and if so I calculated a book value of $5.55 for Wells REIT II as of Q3 2010. If it is Wells II that your client owns, then REIT Secondary Exchange, through an affiliate ("REITCo LLC") was offering $4.25 per share for Wells REIT II on February 1st, less administrative fees of $100 per investor, and less the amount of any dividends paid out after February 1st. The offer expiry date was March 15, and while they may not honor their $4.25 price after that date, I would be surprised if they wouldn't make your client an offer.

Another firm that is in the market quite a bit is MacKenzie Patterson Fuller. They have hooked up with a fee-based financial planning firm (and yes, I am aware of the distinction between a "fee-based" shop and a "fee only" shop, and I make the distinction here because you are an RIA), and together the two firms have organized a number of funds whose sole purpose is to buy Non-Traded REIT shares on the secondary market, such as it is. MacKenzie Patterson Fuller was also offering to buy Wells REIT II units earlier this year, but at $4 per share, less dividends after February 4, 2010. The expiry date for that offer was March 5, 2010. Again, I would be surprised if they wouldn't make your client an offer after that date.

Last and in no particular order except that I happened to post these tenders in descending order based on price, is Madison International. They were also tendering for Wells REIT II shares, but at $3.00 per share. Again, most of these offers expire only insofar as the sponsors are unwilling to take market risk on a price quote, so I would call for an update.

I have posted the SEC 14D filings for these tenders below, and the tender sponsors are all linked above. I have also posted a form of broker dealer letter from Wells REIT II in response to the tender from MacKenzie Patterson and REITCo, and the Wells REIT II press release in response to that tender. Not surprisingly, they recommend against the tender offer. However, since Wells REIT II won't buy any shares back (unless your client is dead or disabled, in which case Wells is only one step ahead of the IRS), there aren't any alternatives if you want/need liquidity. Unfortunately, the Piedmont IPO was not really an IPO, so your client is locked up there until next year. Also, in my studied opinion, some of the Wells REIT II SEC filings are models of neither clarity nor disclosure. I would use your head when dealing with anyone in this market, even if it involves the SEC.

Last but not least, thanks for registering and posting, and best of luck to you and your client!

[MRM]

Thank you for the response. That was exactly the information I needed.

Most of the individuals I speak with about this are BD's and they look at me in horror when I mention selling (getting out of) these products. First, I know they tend to sell these products, second I'm not sure they really know themselves how these products work, and third they ask "why would you want to get out of them?" The other set of people I've talked to were RIAs who said the exact opposite, their response was "why would you put someone into these things?"... I then have to explain the situation.

You mentioned the Piedmont IPO and as I was reading this post I had received Piedmont's quarterly distribution letter which describes just what you were describing.

Thanks again.

[Avidreedur]

My husband and I were "advised" to buy shares in both the Wells and the Piedmont REITS by a B/D advisor we used several years ago. At the time the understanding was that they were not publicly traded but that they would "sell up" when the market was ripe and we would reap the reward. Well, that did not happen...the Piedmont shares have sort of converted...and the CPA investment advisor we use now is planning to sell them as they become viable...but most of my husband's personal IRA is in Wells II REIT. We have held out selling to the offers we get because they are so low, but now we are considering doing a Roth conversion with both our IRA's. We are not income-eligible for a Roth, and he does not have that option where he works. For us, in our tax bracket, a Roth conversion offers some advantages and part of the tax charge could be off-set with contributions to my husband's defined contribution plan he funds through a sole-proprietor S-corp.

To me it seems to make sense to sell the Wells shares at a discount and take the loss before making the Roth conversion--so there is less tax burden. In a situation like that--where you sell at a loss--does any of that carry over to the Roth in a beneficial way?

Our current advisor has not really persued getting rid of these shares because (IMO) our personal IRAs are much smaller than my husband's defined contribution plan. He/we have changed all the other investments we have brought over from the previous advisor--some of which were much better investments than the REITS -- which were really only good for the person who sold them to us. I am supposed to have a conversation with someone who works with our advisor today about selling the Wells shares. I don't know what that might entail. If you have a chance to respond to this today--would be appreciated.

[larry785258]

You mentioned REIT Secondary Exchange. I own that company and while we purchase almost all non-traded REITS we also tender for some at prices much higher than some of the bottom feeder. There was a recent tender for CPA 14 for about $3.50 per unit when we are paying $6.00. Be sure to check our prices before you sell to a tender. Our tender prices will be list on REITCOLLC.com around April 21, 2010.

Much more important is for investors to realize that while purchasing non-traded REIT from the original syndicators is deadly, purchasing at significant discounts in our market may be a great strategy. While some non informed investors are currently buying the Well II product at the offering price of $10 per unit, we are selling it to sauve investors at about $7.00 (disclaimer: prices vary by the day and these are only examples). Imagine one investor putting $10,000 into Wells and getting 10,000 units and our customers paying the same and getting 14,285 units. The products are a disaster at the offering price but may be great if you can buy with the right discount. We recently doubled up a client who had invested $50,000 for 5000 units of Inland Western - for $21,250 he purchased another 5,000 shares and now owns 10,000 shares with an average cost of $7.25.

I would like to see your comments on this investment idea. Either list them here or call me at 602-721-4730. Larry

[reitnovice4]

I'm fairly new to the world of non-traded reits and stumbled upon this website a couple of months ago. The insight and information you've made available here is fantastic! I feel like I'm finally getting a better handle on these types of investments.

Thanks so much.

[REIT Wrecks]

reitexpert4, thanks very much for that. That's really nice to hear.

Larry, I will look forward to checking out your tenders on REITCOLLC. For anyone interested in secondary market purchases, here is a live link to the REITCo site:

REITCo, LLC

The phone number is 602-721-4730

If you believe in asset allocation strategies, non-traded REITs can satisfy the legitimate need for diversification and exposure to real estate, especially for non-accredited investors. But investors and advisors need to be extremely careful. Buying early in the program is widly risky. In most cases, the earlier you buy, the less cash is invested in income producing assets - some of your investment is siphoned off to pay fees to the sponsor, some of it goes to pay offering expenses, another chunk goes to pay a commission to your broker, and another chunk of it is sent right back to you and your compatriots in the form of a "dividend". Whatever's left, which is usually not much, is then put into an actual real estate investment. Buying early in the program is the investment equivalent of doing this:

Just Do It, Circa 1968

The_Deer_Hunter.gif (26.03 KiB) Viewed 11705 times

Buying in the secondary market is not risk free either, and liquidity is still a major issue, but at least you know what's in the chamber.

[privatereitguy]

The Private REIT Exchange can match sellers with buyers. The website (http://www.privatereitexchange.com) says the service should be up and running in May. There is also a blog, http://www.privatereitexchange.com/blog, which seems to be updated often with news and commentary. No phone number, but there is an email contact - info@privatereitexchange.com.

[jam3]

If you are purchasing in the beginning of a non-traded REIT capital raise, you still receive a distribution / dividend. And if that REIT then lists or merges and the early investor gets $14.40 a share like past REITs, then what's the difference? I understand that you are saying that their ACTUAL money is being used to pay distributions to other investors but what does that matter if the end result is the same for an investor that came in later in the game??
I have seen many investors get into a non-traded REIT and love the outcome. Yes, we have just experienced historic times in the real estate industry and some of those with "legacy" assets are hurting but some of the newly formed REITs will be coming out on top and better than anything we have seen in the past.

Also, it drives me crazy to see people shouting about the 7% commission paid to B/D's. There are many other products out there that pay this much (Annuities for example) but the investors still win. The fact is, unless you are a day trader and understand the whole market thing, you cannot do this alone. And a non-traded REIT or anything else should be just a part of a well-balanced portfolio. The whole idea is diverisfication with the chance to make some income, capital appreciation or both.

Don't forget! Return is not just a number. You need to look at total return. (growth plus income minus fees plus tax advantages)

Also, don't forget, the illiquid nature of these products have been a life saver for some. It kept them from jumping out of the investment at exactly the wrong time when it will come back to at least return their principal while they have been receiving distributions for years!

So many people jumped out of their equities and mutual funds at that wrong time and now they are kicking themselves because they have come back and some even better but they already took their loss....

Before you ask, I do not work for a non-traded REIT.

[nbuckley]

I work for American Partnership Board and we are the largest Secondary Market for Limited Partnerships and Unlisted REITs. We have been trading Wells REIT II at over $6.00 unit, which is considerably higher than the other companies mentioned.

For those reading this article, Madison and Mackenzie are tender groups who buy directly from clients at lower prices than what they can trade for, but they can be better if you have a small investment because of the fees involved with selling. Second Market does not trade in these investments, they trade in other illiquid investments.

If you are interested in buying or selling Unlisted REITs or Limited Partnerships, you should visit our webiste at www.apboard.com or call us at (800) 736-9797.

Thanks,

Neal Buckley