Florida Real Estate Investment Trust Lawyer (REIT)
A real estate investment trust (REIT) is a corporate entity that invests in income producing real estate in order to reduce or even eliminate its tax obligations on corporate income. In return for the tax breaks, the REIT will pass on to its investors at least 90% of its income, often partially taxable. Contact our experienced Florida real estate trust investment lawyers for more information.
There are three classifications of REIT:
Mortgage: These trusts invest in the monetary schemes behind the properties rather than the properties themselves. They buy existing mortgages, lend money for mortgages to the property owners or buy up mortgage-backed securities, and their income is relatively stable since it is mainly through interest earned on the various loans.
Equity: These REITs actually own the real estate concerned and invest in its future. The (hopefully upward) changes in value give them their returns, but although these can be considerably greater, they are not so certain.
Hybrid: These trusts use the investment strategies of both the above methods, buying a property in one case or making a loan in another, offsetting the benefits of one type of business against the risks of the other.
Exchange Traded REITs and Non-traded REITs
There are two different and distinct types of REITs, exchange traded and non-traded. Exchange traded REITs trade like stocks and mutual funds on the national securities exchanges, whereas non-traded REITs do not trade on the exchanges. Because they do not trade on the exchanges and because most require extended holding periods, non-traded REITs are considered illiquid investments and are very difficult to value and trade. Early redemption of shares can be very difficult and the fees associated with the early redemption can be high and significantly reduce the return to the investor. It is not uncommon for purchasers to receive accounts statements showing their original purchase price and not realize that because there is no where to trade the REIT and the market for the REIT is extremely limited, the value of the REIT may be far less than what they were led to believe.
FINRA Investigates Marketing of Non-traded REITs
Because of concerns regarding how REITs were marketed and sold to unsuspecting investors, the Financial Industry Regulatory Authority (FINRA) has issued an alert to investors warning of the risks associated with non-traded REITs. Specifically, FINRA warns investors that non-traded REITS are complex, carry risk and:
- Distributions are not guaranteed and may exceed operating cash flow. Deciding whether to pay distributions and the amount of any distribution is within discretion of a REIT’s Board of Directors in the exercise of its fiduciary duties.
- Distributions and REIT status carry tax consequences.
- Lack of a public trading market creates illiquidity and valuation complexities.
- Early redemption is often restrictive and may be expensive.
- Fees can add up.
- Properties may not be specified.
- Real Estate Risk.
FINRA has also commenced disciplinary proceeding against several firms for their sales practices involved in the non-traded REITs. It is now know that firms failed do their own due diligence on the non-traded REITS before recommending their sale to the unsuspecting investor; that firms failed to disclose high commissions and fees associated with the non-traded REITs and also misled investors with how the non-traded REITs were valued on the investor’s account statements.
Free Case Evaluation With An Experienced Florida Real Estate Investment Trust Lawyer
The Law Office of Gregory Tendrich, PA, will be happy to provide an experienced Florida REIT lawyer with whom you can discuss your legal queries. However, as with all else, you should not base an important decision like the choice of a lawyer just on an advertisement, so before making any definite commitments please do ask for a copy of his brochure detailing his formal qualifications and experience in this field, or go to his attorney profile page.