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Non-Traded Reits Suffer Further Devaluations.

 December 31, 2012 10:10 AM


Several large non-traded REITs recently announced further devaluations.  For example, Inland American REIT recently announced that its valuation was decreasing to $6.93 per share (down from its latest valuation of $7.22 per share, and even lower from its original value of $10 per share).

Behringer Harvard REIT I also announced a drop in estimated value to $4.01 per share from $4.64 per share and Hines REIT announced its share value had dropped to $7.61 from $7.78 per share.

Although one large non-traded REIT, KBS REIT, announced its shares had risen nominally from $5.16 per share to $5.18 per share, overall the news for non-traded REIT investors represented more disappointment in these underperforming investments.

[Related -Netflix, Inc. (NASDAQ:NFLX) Q1 Earnings Preview: Trending Towards a Double Surprise]

Further compounding the problem with these devaluations is the shares are illiquid and it is unlikely that the secondary market is paying anywhere near the announced estimated values.  Due to the illiquid nature of non-traded REITs, the buy side of the secondary market is usually inhabited by enterprising and sophisticated venture capital firms and hedge funds.  These entities know that the sellers of non-traded REITs are often desperate for liquidity so the offers  are often for significantly less than the book value of the underlying assets.  With any real estate investment, though, the "true value" is whatever someone is willing to pay so it is likely that secondary market value of these non-traded REITs is currently less than the recently announced "estimated value."

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