Behringer Harvard Short-Term Opportunity Fund - down 96%
Cornerstone Core Properties REIT - down 71.88%
Behringer Harvard Opportunity REIT I - down 58.80 %
Behringer Harvard REIT I - down 53.60%
KBS Real Estate Investment Trust Inc. - down 48.40%
Inland Western Retail Real Estate Trust Inc. - down 30.50%.
Susan Fox, age 63, learned that the hard way. She invested 54% of her IRA in two non-traded REITS at the recommendation of her investment advisor, John Potts of Plano, Texas. The first REIT, Inland American Real Estate Trust, has declined 28%. After seeing that REIT decline, she met with Mr. Potts at her home to discuss her concerns. Mr. Potts promptly sold her another non-traded REIT - Cornerstone Core Properties REIT.
Ms. Fox told InvestmentNews: "My recollection was that he deflected talking about Inland. He was talking over my head and said that [Cornerstone] was a better investment with a better, reputable company, and it would pay dividends. He had a lot of paper spread out on the table. He had all the documents ready for me to sign, and I signed them."
Ms. Fox was recently informed that the Cornerstone Core Properties REIT had been devalued from $8.00 per share down to $2.25 per share - a 72% decline.
Mr. Potts is associated with a broker-dealer named Berthel Fisher & Co. Financial Services, and also with a company called "Pre-Paid Legal," according to the Financial Industry Regulatory Authority (FINRA).
Cornerstone takes the position that "the recent global economic downturn," rather than its own mismanagement, is to blame for the 72% decline. Bertel Fisher says it investigated Ms. Fox's complaint and found it (and Mr. Potts) did nothing wrong. FINRA likewise responded to Ms. Fox's complaint with a shrug.
Tony Webb, a research economist with the Center for Retirement Research at Boston University, sees things differently. He was quoted as saying that "the level of risk wasn't appropriate for the client," adding: "I don't know the client's financial situation, but it strikes me, at first glance, of being an inappropriate investment."
Non-traded REITs have been widely sold to retirement accounts. They are widely sold because the sellers put their own interests ahead of their clients. Non-traded REITs pay high commissions to the seller, but given their illiquidity and risk, they are usually not in the best interest of the purchaser.
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