FINRA may soon release a rule proposal that would potentially shorten the
grace period for untraded REIT valuations.
As reported in a Sept. 20
InvestmentNews article, REITs currently have an 18-month grace period in which to value
an REIT at par before an estimated market value is established. The grace
period begins once the initial offering is closed to new investors, which
typically occurs after about two years.
That means that an untraded REIT could show a $10 per share value (the
typical par value for an untraded REIT) on client
account statements for a period of three and a half years, regardless of the actual market
value. Sponsors also typically find ways to extend the initial offering
period in order to increase the amount of time before they have to establish
a market value.
FINRA officials are concerned that such a long time frame for market valuation
misleads investors, which is what the SRO alleged in
a complaint filed against David Lerner Associates Inc. in May for activities related
to the company's closed Apple REITs. In the complaint, FINRA said
the REITs were "unreasonably valued...at a constant price of $11,
notwithstanding market fluctuations, performance declines and increased
At least 122,000 people - the estimated number of investors in the Apple
REITs since 1992 - were affected by the alleged unreasonable valuations.
(If you were one of them, click
herefor tips on what to do next.) FINRA hopes that the potential rule change
could protect investors by shortening and defining the length of time
non-traded REITs like the Apple REIT Ten would have to record an estimated
Brokers and the public will be able to comment on the proposed rule before
implementation. A publication date has not yet been set.
For more information about the potential proposal, read the full article