Investment News reports that in a recent letter to broker-dealer executives, real estate investor Leo Wells said that his firm, Wells Real Estate Funds, would not register any new investment products, but might do so in the future. Wells reportedly also stated that his firm would continue to serve the needs of existing clients with its real estate investment trust and private real estate fund products.
Several Wells REIT offerings have fared poorly since the economic downturn and accompanying dismal real estate market. For example, the Wells Timberland REIT, Inc., sponsored by Wells Real Estate Funds, launched in 2006 with shares priced at $10 each. Since December 2010, however, most investors have been unable to redeem their shares. Further, the board of directors in December 2012 announced an estimated value of $6.56 per share of common stock in the REIT. The likelihood of investors being able to make redemptions appears uncertain, because, as Investment News recently reported, no cash distributions have been made, redemptions are funded out of the REIT’s “distribution reinvestment plan” and, reportedly, no ordinary share redemptions have been made.
Wells, however, explained that the decision to halt new offerings stemmed from uncertainty regarding REIT regulation. “As most of you are aware, [the Financial Industry Regulatory Authority Inc.] has been working toward producing new transparency guidelines for alternative investments, which they expect to become effective mid-2014,” Wells wrote, according to Investment News. “As a result, I do not believe it is prudent to register a new product that may or may not meet the new regulatory requirements.”
“Until we have regulatory and marketplace clarity, in addition to more uniform guidelines throughout the industry, I believe it wise to ‘pause’ in our offering of real estate investment products,” Wells wrote, according to Investment News. “Once we have the clarity we require to make prudent investment product decisions, we intend to come to market with strong and innovative products.”
Wells Real Estate Funds is a “viable and well-capitalized company,” Wells wrote, according to Investment News. According to the firm’s website, Wells Real Estate Funds, the firm was founded in 1984, and has invested more than $12 billion in real estate for more than 300,000 investors. Much of this money, however, has been raised through non-traded REITS, which are facing increased scrutiny from regulators regarding their fees, valuation methods, and representations made to clients, including values stated on client account statements. Investment News reports that the Investment Program Association, an industry trade group, is plans to publish guidelines intended to standardize valuations of non-trade REITS in the first quarter of 2013.
A spokesperson for Wells Real Estate Funds stated that it had no intent to close its wholesaling broker-dealer, Wells Investment Securities Inc., reported Investments News. Wells wrote that the halt in registering new products might lead to staff cuts, especially in the area of capital markets, according to Investment News. Wells also wrote that Wells Real Estate Investment Trust II intends to become an independent company early this year and the Wells Core Office Income REIT will close to new investments in June, according to Investment News. The Wells Timberland REIT is also looking toward “its appropriate exit strategy,” Wells wrote, according to Investment News.
Wells is a well-known real estate sponsor within the independent broker-dealer industry, in which his non-traded REITS have been popular. In October 2003, Finra’s precursor, NASD, sanctioned Wells Investment Securities for improperly rewarding broker-dealer reps who sold the company’s REITs with lavish entertainment and travel incentives. At the time, NASD also censured Wells and suspended him from acting in a principal capacity for one year.
Investors who have lost money in non-traded REITs offered by Wells Real Estate Fund or other sponsors can file FINRA arbitration claims against the brokerage firms who sold this high risk, unsuitable investment to them. Sonn Law Group specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. Investors may be able to sue for damages, while keeping ownership of their illiquid investment. Sonn Law Group has represented numerous investors in FINRA arbitration claims against the brokerage firms who sold illiquid, high-commissioned, non-traded investments and REITS. Sonn Law Group continues to investigate REITS and non-traded funds, such as Wells REIT II, Inland Western Real Estate Investment Trust, Inland American Real Estate Trust, Cole REIT II, Cole Credit Property Trust II, Hines Real Estate Trust, Grubb & Ellis Apartment REIT, CNL Lifestyle Properties, Dividend Capital REIT, and KBS REIT I, and Behringer Harvard investments on behalf of defrauded investors. To learn more, including whether you may have a claim for non-traded REIT or other investment losses, please call us at 844-689-5754 or complete our “contact form.”