New Financial Disclosure Rules Pose Latest Hurdle for Beleaguered Non-Traded REIT Industry

Over the next few weeks, investors in non-traded REITs will begin receiving new financial statements mandated under new rules that require trusts and their broker-dealers to provide more accurate and timely information on the actual value of their investments as well as on broker commissions and fees paid by investors.

The revised account statements are required under regulations enacted on April 11 of this year by the Financial Industry Regulatory Authority (FINRA), the independent self-regulating agency for the financial industry, on behalf of the U.S. Department of Labor and the Securities and Exchange Commission.

One of the biggest changes for investors and broker-dealers alike is the new requirement for breaking out fees and expenses separately from the market value of their investments. Over the last 15 years, non-traded REIT sponsors have been allowed to include fees and expenses, typically amounting to between 10 and 15 cents on the dollar, as part of the total value of their clients’ investments in financial statements.