What Are Non-Traded REITs?
A non-traded REIT is a real estate investment trust that is registered with the SEC but does not trade on any public stock exchange, and is typically sold by brokers and financial advisors to retail investors seeking income from commercial real estate. Unlike publicly traded REITs—whose shares can be bought and sold on the NYSE or NASDAQ at transparent, market-determined prices—non-traded REITs are illiquid, opaque, and carry upfront costs that can consume 9–15% of the investor’s capital before a single dollar is invested in property.
Non-traded REITs raise capital through public offerings sold by broker-dealer networks. The REIT’s sponsor—an external management company—uses the proceeds to acquire income-producing real estate such as office buildings, apartments, healthcare facilities, hotels, or retail centers. Investors receive periodic distributions, often marketed at yields of 5–8%, and are told to expect a liquidity event within seven to ten years.
The product comes in two primary forms. Traditional lifecycle non-traded REITs have a defined capital-raising period followed by an operational phase and ultimately a listing or asset sale. Newer NAV REITs—such as Blackstone’s BREIT and Starwood’s SREIT—offer periodic redemption windows based on net asset value rather than a fixed lifecycle, but both structures carry significant risks that brokers routinely understate.
What Are the Hidden Risks of Non-Traded REITs?
Non-traded REITs expose investors to illiquidity, valuation opacity, and structural conflicts of interest—risks that brokers frequently minimize when positioning the product as a stable income investment.
Illiquidity is the defining risk. Investors in lifecycle non-traded REITs cannot sell their shares on an exchange, and redemption programs are discretionary—the REIT’s board can suspend or limit them at any time without investor approval. Investors who need access to their capital may be locked out for years, with the secondary market as their only option at steep discounts.
NAV REITs offer periodic repurchase windows, but those windows have caps. BREIT limits monthly repurchases to 2% of net asset value and quarterly repurchases to 5%. When redemption demand exceeded those limits from November 2022 through early 2024, BREIT prorated withdrawals—investors who needed their money received only a fraction of what they requested each month.
Valuation opacity compounds the liquidity problem. Non-traded REITs do not have market-determined share prices; instead, the sponsor or an affiliated appraiser estimates the NAV. A MacKenzie Capital Management tender offer in October 2023 valued BREIT shares at $9.27—roughly 38% below Blackstone’s reported NAV of $14.88—suggesting a significant gap between stated and realizable value.
How Are Non-Traded REIT Fees Hidden from Investors?
Non-traded REIT fees are embedded in the product’s offering structure and disclosed only in dense prospectus documents that most retail investors never read. The SEC has warned that upfront fees on non-traded REITs can reach 15% of the offering price, consuming a substantial portion of the investor’s capital on day one.
The fee layers typically include a selling commission of 6–7% paid to the broker and firm, a dealer manager fee of 1.5–3%, and additional offering and organizational expenses of 0.5–1.5%. On a $100,000 investment, these costs can total $9,000–$15,000—money that never gets invested in real estate.
Ongoing fees deepen the cost drag. Non-traded REITs charge asset management fees, property acquisition fees, and disposition fees that reduce distributable income and erode NAV over time. The SEC has also cautioned that distributions may come from offering proceeds and borrowings rather than actual investment income—meaning investors may be receiving their own capital back while believing they are earning a return.
Why Do Brokers Recommend Non-Traded REITs Despite the Risks?
Brokers recommend non-traded REITs because the products generate commissions far exceeding what comparable investments pay. A 7% selling commission on a $100,000 non-traded REIT generates $7,000 for the broker and firm—compared to a fraction of that amount for a publicly traded REIT index fund with an expense ratio under 0.50%.
This compensation structure creates a direct conflict of interest. Under Regulation Best Interest (Reg BI), broker-dealers must consider reasonably available alternatives before recommending a product. A November 2024 report by the North American Securities Administrators Association (NASAA) found that many firms selling non-traded REITs had not updated their policies to comply with Reg BI’s requirement to evaluate lower-cost alternatives.
Revenue-sharing arrangements between REIT sponsors and broker-dealers add another layer of conflict. Sponsors pay marketing allowances and due diligence reimbursements that incentivize firms to promote preferred products over independent alternatives. When a firm’s compliance department does not adequately review these recommendations against customer profiles, unsuitable sales go unchecked.
Are Non-Traded REITs Suitable for Retirement Accounts?
Non-traded REITs are unsuitable for most retirement accounts because their illiquidity, high fees, and risk of principal loss conflict with the capital preservation and income stability that retirees depend on.
A retiree who invests $200,000 of an IRA into a non-traded REIT with a 10% upfront load immediately loses $20,000 in purchasing power. If the REIT suspends distributions—as NorthStar Healthcare Income did in 2019 and Moody National REIT II did in 2020—the retiree loses the income stream they were counting on and cannot exit without accepting a steep secondary-market discount.
FINRA’s suitability rules and Reg BI require brokers to evaluate whether a less complex, less costly product could achieve the same objective. For a retiree seeking real estate exposure, a publicly traded REIT index fund provides daily liquidity, transparent pricing, and expense ratios below 0.50%—without locking up capital for a decade.
NASAA’s updated REIT Guidelines, effective January 1, 2026, impose a new 10% concentration limit for non-accredited retail investors. Despite these protections, elderly investors continue to be disproportionately targeted for non-traded REIT sales because they hold the largest retirement balances and often trust their brokers to act in their interest.
Recent Non-Traded REIT Fraud Cases and Enforcement Actions
Non-traded REITs have generated significant investor losses, FINRA arbitration filings, and regulatory scrutiny in recent years. The following cases illustrate the patterns of misconduct and loss that continue to affect retail investors.
NorthStar Healthcare Income REIT — 70% Investor Losses (June 2025). NorthStar Healthcare Income, a non-traded REIT focused on senior housing, was acquired by Welltower Inc. for $3.03 per share in June 2025. Investors who purchased shares at the original offering price of $10.00 per share lost approximately 70% of their principal. NorthStar had suspended all distributions in 2019, and secondary-market shares traded as low as $1.01 before the merger. Our firm is actively investigating claims involving NorthStar Healthcare Income REIT.
Moody National REIT II — Liquidation and Dissolution (2025). Shareholders of Moody National REIT II, a hospitality-focused non-traded REIT, voted in September 2025 to liquidate and dissolve the company. Distributions were suspended in 2020 and never resumed. Secondary-market shares traded between $3.50 and $4.75 against the original offering price of $25.00—a loss exceeding 80%. FINRA arbitration claims have been filed against firms including Centaurus Financial and Western International Securities.
Inland Real Estate Income Trust — NAV Decline and Redemption Freeze (2025). Inland Real Estate Income Trust reported a new estimated NAV of $16.89 per share as of September 2025, an approximately 12% decline from its prior valuation. Between July and September 2024, only $107,036 of $2.4 million in redemption requests were fulfilled. Secondary-market shares traded at approximately $11.75—roughly 30% below the stated NAV.
SEC and NASAA Heightened Regulatory Focus (2025–2026). The SEC’s FY 2026 Examination Priorities explicitly list non-traded REITs as an area of heightened focus for broker-dealer Reg BI examinations. NASAA’s September 2025 amendments to its REIT Guidelines introduced a 10% concentration limit for non-accredited investors and codified Reg BI compliance obligations for anyone recommending non-traded REIT shares.
What Should You Do If You Lost Money on Non-Traded REITs?
Investors who suffered losses from non-traded REITs may have legal claims against the broker and firm that recommended the investment. Most brokerage account agreements contain mandatory arbitration clauses, meaning claims are filed through FINRA arbitration rather than court—but investors can and do recover substantial amounts through this process.
Common legal grounds for non-traded REIT claims include unsuitable recommendation, misrepresentation or omission of material risks, failure to supervise, breach of fiduciary duty, overconcentration, and negligence. The specific theory depends on whether the product matched the investor’s risk tolerance, whether fees and illiquidity were disclosed, and whether the firm maintained adequate compliance procedures.
Time limits apply. FINRA’s eligibility rule generally requires claims to be filed within six years of the event giving rise to the dispute. State statutes of limitation may impose shorter deadlines. If you believe your broker recommended a non-traded REIT that was unsuitable for your financial situation, you should consult a securities attorney promptly.
Talk to an Investment Fraud Attorney About Your Non-Traded REIT Losses
If you lost money on non-traded REITs due to a broker’s unsuitable recommendation, misrepresentation of risks, or failure to disclose material facts about fees, illiquidity, or conflicts of interest, you may have a viable claim to recover those losses.
Attorney Robert Wayne Pearce has over 45 years of experience representing investors in FINRA arbitration and securities litigation. Under his leadership, the Law Offices of Robert Wayne Pearce, P.A. has recovered more than $185 million for clients nationwide in cases involving investment fraud, stockbroker misconduct, and complex financial products including non-traded REITs and private placements.
Call (800) 732-2889 today for a free consultation. There is no cost to discuss your situation and determine whether you have a claim worth pursuing. The sooner you act, the stronger your position—time limits on filing FINRA arbitration claims can work against investors who delay.
Frequently Asked Questions About Non-Traded REITs
Are Non-Traded REITs FDIC Insured?
No. Non-traded REITs are securities, not bank deposits. They are not insured by the FDIC, SIPC, or any government agency. If the REIT’s properties lose value or the REIT fails, investors can lose part or all of their principal
What Is the Difference Between a Non-Traded REIT and a Publicly Traded REIT?
A publicly traded REIT’s shares are listed on a stock exchange, giving investors daily liquidity and transparent, market-determined pricing. A non-traded REIT’s shares do not trade on any exchange, forcing investors to rely on the sponsor’s estimated NAV for valuation and on limited redemption programs—or secondary markets—to exit. Non-traded REITs also carry substantially higher upfront fees, typically 9–15% of the investment.
What Is a NAV REIT, and Is It Safer Than a Traditional Non-Traded REIT?
A NAV REIT calculates net asset value on a regular basis and offers periodic repurchase windows instead of a fixed lifecycle. Major NAV REITs include Blackstone’s BREIT and Starwood’s SREIT. While NAV REITs provide more frequent valuation updates and redemption opportunities, repurchase programs are subject to caps and can be restricted when demand is high—as occurred with BREIT from November 2022 through early 2024.
How Long Do I Have to File a FINRA Claim for Non-Traded REIT Losses?
FINRA’s eligibility rule requires that arbitration claims be filed within six years of the event giving rise to the dispute. State statutes of limitation may impose shorter deadlines. The clock typically starts when the investor knew or should have known about the losses—a triggering event could be a distribution suspension, a large NAV decline, or a liquidation announcement.
Can My Broker Be Held Liable for Overconcentrating My Portfolio in Non-Traded REITs?
Yes. FINRA suitability rules and Reg BI require that recommendations be appropriate in the context of the investor’s entire portfolio. Placing a disproportionate share of a portfolio in illiquid non-traded REITs, particularly for a retiree, may constitute a failure to diversify. NASAA’s updated REIT Guidelines now impose a 10% concentration limit for non-accredited investors.
What Evidence Do I Need to Prove My Broker Misrepresented a Non-Traded REIT?
Key evidence includes account statements showing the purchase, the REIT’s prospectus, marketing materials or correspondence from your broker, your customer account agreement documenting risk tolerance and objectives, and records of any verbal representations about the product’s safety or liquidity. A securities attorney can also obtain your broker’s regulatory history through FINRA’s BrokerCheck system.
