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REIT Liquidation Offers Usually a Rip Off

Posted by Keith on March 27, 2007 at 8:41 am  


Thanks for the insight in Wells. I recieved an offer from Madison Liquidity Investors at $8.00 a share, is that a good deal? Wells told me they don’t buy these back, that their redemption is suspended. Should I take Madison’s offer? They are based out of Kansas City. Love your show!



Good question. Actually, the $8 per-share offer you received came from a group specializing in what we used to call “The Widows and Orphans Market” — and you should not accept the offer.

Here’s what happens: Dad buys a non-liquid (not publicly traded) REIT. Dad dies. Mom now has an illiquid asset in the estate. She does not understand that good private REITS have respectable redemption programs at a true fair market value.

Mom receives a letter in the mail offering $8 per share (or whatever) for this “illiquid” asset she may know little about. She is sooooo grateful! She accepts the offer. The problem is, she could either have sold or redeemed the shares for $14 each — their fair market value.

Now back to your situation: To my knowledge, Wells REITS are publicly traded — although there may be some non-publicly traded versions of their REITS with which I am not familiar. There are four publicly traded version of Wells REITS. Their tickers are WSPZX, WSPBX, WSPCX and WSPIX. At this writing the first three were selling on on NASDAQ for about 14.50, and the third was selling on NASDAQ for about 14.30 — well above the $8.00 per share you are being offered.

The fact that Wells is not redeeming your shares any longer may reflect the fact that your shares are now publicly traded. If so, you can be out today — and I recommend you bail on these Wells REITS — at over $14.00 per share — more than a $6.00 per-share difference from what you were offered.

Private REITS, such as the Inland series, do not trade on the exchanges. This can be an advantage since the market will not push the per-share price above or below its true value. Instead, these REITS have sensible redemption programs based on formulas contained in the prospectus. The Inland formulas, for example, are imminently fair. My point is that even if you have a non-publicly traded REIT, don’t be too quick to jump at those unsolicited in-the-mail, discounted offers. They are almost always a bad deal.

After reading this, somewhere a widow or an orphan weeps…



1 Comment so far

  1. J. Kanatzar on April 4, 2007 9:14 am


    I thought that I would take a moment to make a few comments on your discussion of Wells REITs and “The Widows and Orphans Market”. As a financial professional and owner of Wells Real Estate Investment Trust Inc. and Inland Western Real Estate Investment Trust, Inc – both non-traded REITs, I am familiar with the offers that you speak of in your March 27th posting to Tom. I wanted to provide you with some relevant details, because it appears that the information you have is incorrect and potentially misleading to your readers/listeners. I received the 8.00 per share offer from Madison related to the Wells REIT. It is important to note that Wells has paid 8.38 per share through their share redemption program. However, that program is currently inactive, so I cannot get 8.38 from Wells currently. Generally, you will find that it is better to compare the prices of these offers to that of the informal secondary trading market, since it represents the price that a wide range of people are willing pay for the shares. That trading market has not reflected the 14.00 that you indicate, and if it had I would have sold immediately. The symbols that you reference WSPZX, WSPBX, WSPCX, etc are not related at all to the Wells REIT. These symbols relate to index funds that are managed by Wells and are made up of publicly traded REITs and to my knowledge do not include non-traded REITs.

    Also, your response to Tom, asserts that investors can get 14.00 for their non-traded Wells REIT shares, and nothing could be further from the truth. The trading market has averaged almost $8.00 per share recently, which is disclosed in the Wells paperwork that I received. I have not made a decision to accept the offer at this point, but I can tell you that it is a compelling option given Wells’ spotty repurchase capabilities. Additionally, this Wells fund has massively underperformed, and if Madison is willing to jump in and take the risk at 8.00 per share in an office REIT market that may have seen its best days, then informed investors are going to think about it or at least should.

    Another REIT family that you mentioned was Inland. I mentioned above that I also own shares of Inland Western Retail REIT (non-traded). I got an offer from the same company, Madison, for shares of this REIT. It was priced at 9.76 per share. Again, not a bad offer considering I can only sell the shares back to Inland for 9.75. You are correct in that offers like these require some scrutiny, but they should not be all thought of as low ball offers. I cannot speak for all offers, but the Madison offers that I have received recently have either been higher than the share price offered by the REIT or competitive with the secondary market. Furthermore, have you ever tried to liquidate a non-traded REIT in the secondary market, to say the least it is an operational nightmare for an advisor and the fees charged by the brokers or matching service are 5,6,7%++. Just my two cents….enjoy your show.


    Thanks for your thoughtful comments. Yes, I was referring to the publicly traded Wells shares, which were being quoted at $14.

    Regarding Inland, I believe the $9.75 per share redemption value attaches only to shares held for less than a year or two. Thereafter, there is a more generous formula in their prospectus for redemptions. And investors should always read the prospectus.

    We both certainly agree on one thing: Investors should be very cautious before accepting unsolicited offers for their REIT shares.


    JK – Destin, FL

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