Last week, Nicholas Scorsch announced his intentions to acquire Cetera Financial Group, through RCS Capital and form one of the largest independent broker-dealer networks in the U.S..
Scorsch has been making waves for years in the real estate investment industry. Shortening times that investors normally expect on nontraded-REIT investments to return any revenue, Scorsch’s business has been changing the paradigm on nontraded-REITs.
Nontraded REITs are a variant on traditional, publicly traded REITs but carry with them some significant risks for everyday investors.
“Because of the ridiculously high costs and fees, many of which are hidden, there is no reason for investors to spend their money on nontraded REITs,” commented Peter Mougey, a shareholder with the Levin, Papantonio law firm and director of the firm’s securities and business torts departments. “These products are designed to make money for the people who sell them.”
Public nontraded REITs often carry sizeable fees associated with the handling of them. Sometimes climbing over 15% on the front end and coupled with agreements for the handler to receive a percentage of any revenues from the product. It’s common for public nontraded REITs require buyers to agree to keep the product for a number of years with no way of getting away from them.
For these and other reasons, knowledgeable investors don’t consider public nontraded REITs wise investments. Instead, companies that are more likely to charge outrageous fees peddle their products to the unwary investors who don’t know any better.
“Any investment that charges $15 of the first $100 for fees and costs is not a viable option for any investor,” Mr. Mougey added.