Stoltmann Law Offices, P.C., a Chicago-based investors rights and securities law firm offering nationwide representation on a contingency-fee basis, has represented hundreds of investors over the years who have suffered losses in non-Traded Real Estate Investment Trusts (REITs). These investments are sold, not bought, meaning financial advisors push these products on investors because of the high commission rates they pay out. These investments are illiquid, meaning an investor cannot just sell out and get their money out, and they are on the speculative side of the risk scale. Although they are sold by financial advisors as providing stable value and high income in a low interest rate environment, REITs are anything but stable and are certainly high risk.
Recently, the SmartStop Strategic Student & Senior Housing Trust sent a letter to shareholders, on behalf of the board of trustees, warning of the REITs financial problems. The letter, as reported by TheDIWire, paints a dire picture about the REIT’s financials, including blaming Covid twice for its underperforming properties. The REIT only owns two student housing properties and four senior housing properties. The REIT came to market in 2017 through a private placement and then opened to the public market in May 2018, raising about $110 million from investors. According to the letter sent to investors, the Strategic Student & Senior Housing Trust is mired in debt and does not have sufficient cash to make necessary payments on certain bridge loans, absent a restructuring of that debt. These are certainly dire times for this REIT and the investors could be left holding the empty bag if the REIT liquidates.
Non-Traded REITs are by nature illiquid and high risk. Although pitched by financial advisors as being “non-correlated” to the stock market, the only reason this is the case is because the non-traded characteristic means the price doesn’t reset every day, like publicly-traded funds, for example. These non-traded REITs are mired in conflicts of interest, are very complicated structurally, and are designed to do one thing: save the owner of the real estate on taxes. That’s the entire purpose of the REIT structure – its a tax savings vehicle for SmartStop.