By Tim Husson, PhD
Following in the footsteps of several other large non-traded REITs, Wells Timberland REIT has revised its estimated per share value down to $6.56, from approximately $9.50 reported in the company's last 10-Q. The shares were sold for $10.00 per share starting in August 2006 and as late as December 2011.
Non-traded REITs are largely illiquid real estate investments that can be sold to retail investors but are not traded on major exchanges (see our white paper on non-traded REITs for details). Many non-traded REITs had initial offerings before the real estate collapse, but did not update their sale prices to reflect the likely declining value of their holdings. FINRA recently required non-traded REITs to provide good faith estimates of that per share value, and the results have not been pretty--several non-traded REITs have revised their estimated per share values downwards over 25% (over 50% in some cases).
Remarkably, this lack of revision to the offering price was touted as an advantage by many non-traded REITs and broker-dealers. But because the long-maintained $10 values were not market values, they did not reflect the declining value of most classes of real estate. It's important to note that the recent revaluations are still not market values, but are management's estimates and likely do not reflect what an investor would receive in the very limited secondary market.
It is not clear whether a truly transparent market will ever exist for non-traded REIT shares, nor is it guaranteed the value will ever return to or exceed the $10 per share most investors paid. While some non-traded REITs have issued shares on public markets and become traded REITs, it is not clear why any investor would prefer an illiquid, non-transparent, and high-fee product when there are numerous traded REITs and real estate mutual funds to choose from.
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