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WELLS REAL ESTATE INVESTMENT TRUST

Posted by Keith on March 25, 2007 at 7:59 pm  

Keith,

Love your site and radio show. But you were really hard on Wells Real Estate Investment Trust on your show. I was persuaded to buy into that REIT by my advisor. Is it really that bad a deal?

Happy sailing. Look forward to following your adventure!

Bill, Tampa Florida

Bill,

Yes, it is that bad a deal. In my opinion, Leo Wells has gouged investors with exhorbitant administrative and management fees for years. The Wells REITs (there’s more than one) had zero employees. They “purchased” services from entities owned by — you guessed it — Leo Wells.

Now that these REITs are much more passive — that is, they aren’t nearly as active in the real estate market — Mr. Wells wants the REITs to bring those “services” in house. According to Forbes Magazine, Mr. Wells now├é proposes “buying out” the management agreements for a mere $175M. Who would get that money? Mr. Wells. But those entities only billed the REITs $27M in the first nine months of 2006. Why? Because there is much less for them to do now than when they were actively acquiring real estate and billing, say, $160M in 2003.

The point is, Leo Wells has gouged shareholders for years with these high fees; and now, in a parting insult, he wants about seven times the gross annual fees he is currently charging the REITs in order to bring those services in house — where they belonged in the first place. Finally, the Wells REITs have done poorly. While most office REITS have doubled in value in the past 3-4 years, Wells shares are up only about 6%, according to Forbes.

My advice regarding Wells: Get out and stay out.

A final note: REITS can be very good things. If you are looking for some straight shooters, check out the Inland series of REITS. I like them precisely because they are not publicly traded, but calculate their share redemption value based on actual net revenues. This provides a nice counter-balance to stock and bond portfolios that can be buffeted by market sentiment.

–Keith


Comments

2 Comments so far

  1. Thomas Jones on March 26, 2007 8:35 pm

    Keith,

    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!
    Tom

  2. Katy Cain on April 10, 2007 2:14 pm

    Keith,
    Wells customer service office says the redemption program was reinstated end of March and upon requests, at end of April, requests will be considered based on funds in pool. Would the best deal be to sell to Madison?
    Thanks,
    Katy

    Katy,

    Your question, and Tom’s illustrate the limits of a long-distance advisory relationship. I am not remotely able to advise you on the best offer without becoming thoroughly familiar with all the competing offers, your individual needs, and with whether it is even a good idea for you to divest yourself at this time (although I do have a bias in favor of exiting the Wells REITS).

    Honestly, regarding this issue, the very best advice I can offer is for you to sit down with a competent financial advisor who will take the time to learn all about your situation, and who can then advise you accordingly. I would remind you that we have a nationwide network of top advisors standing by ready to meet with you for free, for the first consultation. I encourage both you and Tom to take advantage of our Free Consultation Program by clicking on the icon in the right hand column of the home page.

    –Keith

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