On the surface, a Non-traded Real Estate Investment Trust (REIT) sounds simple enough. It’s a company that owns or finances real estate that produces income. But here’s the critical catch: its shares do not trade on national stock exchanges. This single detail makes them a world apart from their publicly traded cousins—and often far more dangerous for the average investor.

Brokers frequently pitch these as safe, high-yield products, but that’s rarely the whole picture.

Unpacking the Dangers of Non-Traded REITs

Think of a publicly traded REIT like a familiar stock. You can buy or sell it with a few clicks on the NYSE, and its price is updated constantly for everyone to see.

A non-traded REIT, by contrast, is like joining an exclusive real estate club. It’s easy to get your money in, but getting it back out can be a nightmare—slow, difficult, and sometimes, simply not possible.

This core difference creates enormous risks that are often glossed over by the very people selling them. For many investors, especially retirees counting on access to their nest egg, these hidden dangers can lead to financial ruin.

The Problem of Illiquidity

The single greatest risk of non-traded REITs is their severe lack of liquidity. Because the shares aren’t listed on a public exchange, you can’t just sell them when you need to. Your money is essentially locked away, often for many years.

If you need to cash out, your only option is typically a limited "share redemption program" run by the REIT itself. These programs are notoriously restrictive and can be changed, suspended, or even canceled at the company's whim—usually when market turmoil makes investors want their money back the most. This structure traps your capital, leaving you powerless to react to personal financial emergencies or shifting economic conditions.

High Fees and Opaque Valuations

Another massive red flag is the fee structure. Non-traded REITs are loaded with heavy upfront fees and commissions that can eat up 10-15% of your initial investment. That money is skimmed right off the top before a single dollar goes into property. It means your investment is already in a deep hole from day one.

Making matters worse, the value of a non-traded REIT isn't set by the open market. The company itself estimates its Net Asset Value (NAV), usually just once a quarter or once a year. This lack of transparent, daily pricing means you never really know what your investment is worth. To protect yourself from products like this, it’s vital to understand how to conduct effective risk assessment.

These products are often complex and illiquid, making them unsuitable for many retail investors, particularly those who are retired or nearing retirement. An unsuitable recommendation can be grounds for a legal claim to recover losses.

If you were sold a non-traded REIT that didn't fit your financial situation or risk tolerance, you might have a path to recover your money. You can find a more detailed breakdown in our guide on non-traded real estate investment trusts.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

The Critical Differences Between Traded and Non Traded REITs

To truly understand the dangers lurking within non traded REITs, you have to compare them directly to their publicly traded cousins. While both are built on real estate, the way they function—and the risk they pose to your portfolio—are night and day. These aren't just minor details; they are fundamental differences that dictate your ability to access your money, know your investment's true value, and actually keep your returns.

Think about owning stock in a company like Apple or Ford. If you need cash, you can log into your brokerage account and sell those shares on the NYSE in seconds. Publicly traded REITs work the exact same way. They give you a clear, immediate way out and a transparent market price that's updated constantly.

A non traded REIT, on the other hand, operates in the shadows. It’s a private, closed-off market. Once your money is in, it's effectively locked up, and your ability to get it out is severely limited. It's this crippling lack of flexibility that brokers often gloss over while they sell you on the promise of high returns.

To give you a clearer picture, let's break down exactly where these two investment types diverge.

Traded REITs vs Non Traded REITs A Head-to-Head Comparison

The table below cuts through the noise and lays out the core differences side-by-side. Pay close attention to how these features impact your control, your costs, and your access to your own money.

As you can see, the term "REIT" is about the only thing they truly have in common. The operational realities make them entirely different investments with vastly different risk profiles.

Liquidity The Freedom to Sell

The single most important difference is liquidity. Publicly traded REITs are liquid. You can sell your shares on a stock exchange whenever you want at a clear market price. That puts you in the driver's seat.

Non traded REITs are the polar opposite—they are profoundly illiquid. Getting your money out is completely dependent on the REIT's own share redemption program, if one even exists. These programs are notoriously restrictive and can be changed, suspended, or shut down entirely without warning. This is a tactic known as "gating."

And when do they usually slam the gate shut? During market downturns, which is precisely when investors are most likely to need their money. It's a terrible trap to be in when you need to access your savings.

Transparency and Valuation Knowing What It's Worth

Another huge red flag is the lack of transparency. Publicly traded REITs are held to a high standard by the Securities and Exchange Commission (SEC). They file detailed reports, and their value is set by the open market for all to see.

Non traded REITs live in a much murkier world.

• Infrequent Valuations: The company calculates its own value, or Net Asset Value (NAV), maybe once a quarter or even just once a year.
• Subjective Pricing: This valuation isn’t based on real-time supply and demand. It’s based on internal appraisals that can be slow to reflect what's actually happening in the real estate market.
• Limited Disclosures: While they file with the SEC, you don't get the day-to-day transparency that comes with a publicly traded security.

The initial share price of a non traded REIT is an arbitrary number set by the issuer. It often remains fixed at that price for years, giving a false sense of stability even as the underlying value of its real estate assets may be declining.

Fees and Commissions Who Gets Paid First

The fee structure tells you everything you need to know about who these products are designed to benefit. Buying a publicly traded REIT costs about the same as buying any other stock—a minimal commission.

Non traded REITs, however, are loaded with shockingly high upfront fees and commissions. These charges can eat up 10% to 15% of the money you invest. That means if you invest $100,000, up to $15,000 could go straight into the pockets of the broker and the issuer before a single dollar ever gets invested in a property. You start in a massive financial hole.

For investors trying to understand different real estate investment structures, comparing real estate syndication versus REITs can offer more context. Because non traded REITs aren't publicly traded, they carry many of the same risks as other unregistered securities. You can learn more about these dangers in our guide to investing in private placements.

If your broker never walked you through these critical differences, it’s highly likely these products were unsuitable for you from the start.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

Red Flags Identifying Misconduct in Non Traded REIT Sales

Understanding the risky structure of non traded REITs is only half the battle. You also have to recognize the deceptive sales tactics that financial advisors and brokerage firms sometimes use to push these unsuitable products onto trusting investors, especially retirees.

These products carry enormous upfront commissions—often 10% or more—giving brokers a powerful financial incentive to sell them, whether they’re a good fit for their client or not. This conflict of interest is the root cause of widespread misconduct in the sale of non traded REITs.

Knowing these red flags can help you spot when an advisor has crossed the line from providing sound advice to committing negligence or even fraud.

Misrepresenting the Investment as Safe or Guaranteed

One of the most common and dangerous tactics is pitching a non traded REIT as a safe, stable, or guaranteed investment. Brokers might compare them to bonds or CDs, highlighting the "steady" income from distributions. This comparison is dangerously misleading.

These are not guaranteed investments. Their value is not stable, and the distributions are often not paid from actual profits.

A critical point that brokers frequently leave out is that many non traded REITs fund their distributions with borrowed money or by simply returning a portion of the investor's own principal. This creates a dangerous illusion of profitability while the underlying investment may actually be losing value.

Any advisor who calls a non traded REIT "safe" or a "bond alternative" without fully explaining the risks of illiquidity, opaque pricing, and the potential for a total loss is misrepresenting the product.

Downplaying the Hefty Commissions and Fees

The massive fees tied to non traded REITs directly eat into your potential returns. An investment that starts with a 10-15% deduction for commissions and fees is already in a deep hole. Unscrupulous brokers often gloss over these costs or bury them in dense jargon.

If your advisor didn't clearly explain exactly how much money they and their firm were making from your investment, that's a major red flag. They have a duty to disclose all costs and conflicts of interest. In some cases, a broker might even engage in "selling away," where they sell products not approved by their firm, often because the commissions are even higher. You can learn more about the serious risks of what is selling away in our detailed guide.

Recommending Illiquid Products to Investors Needing Access to Capital

Perhaps the clearest sign of an unsuitable recommendation is when a broker sells an illiquid product to an investor who needs access to their funds. This is especially true for retirees who depend on their nest egg to cover living expenses.

• Retirees: Tying up a large chunk of a retiree's savings in an investment that can't be sold for seven to ten years is almost always an unsuitable recommendation.
• Investors with Short-Term Goals: Anyone who might need capital for a major purchase, medical bills, or other life events should never be locked into an illiquid investment.
• Overconcentration: Placing too much of an investor's portfolio into a single non traded REIT—or several of them—is another form of unsuitability. This lack of diversification dramatically increases risk.

Brokers have a regulatory obligation to understand your financial situation, liquidity needs, and risk tolerance. Recommending a non traded REIT to someone who cannot afford to have their money locked up for years is a clear breach of that duty.

If any of these scenarios sound familiar, you may have been a victim of broker misconduct. The good news is that there are established legal pathways, like FINRA arbitration, to hold negligent advisors and their firms accountable and recover your losses.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

Recent Market Performance and Inherent Volatility

The theoretical risks of non traded REITs—their illiquidity, high fees, and opaque valuations—become painfully real when you look at how they’ve actually performed. Brokers often pitch these as stable, almost bond-like investments, but the reality is that the non-traded REIT market can swing wildly, trapping investor money right when they need it most.

This isn't just a case of a few bad apples or unlucky breaks. We're talking about fundamental problems baked into the product. A quick look at recent history shows a market that can turn on investors with very little warning, exposing the instability that hides just beneath the surface of those promised steady returns.

Fundraising Volatility and Market Instability

The fundraising numbers for non-traded REITs often look more like a rollercoaster than a stable investment, completely contradicting the sales pitch. For instance, the industry has seen massive fluctuations that should be a major red flag for any investor.

In Q1 2025, non-traded REITs raised around $2.08 billion. While that was an increase from previous quarters, it was a far cry from the $12.5 billion peak back in 2021. But even that small bit of momentum fizzled out fast, with fundraising dropping to just $1.63 billion in Q2 2025. And while giants like Blackstone Real Estate Income Trust (BREIT) kept pulling in money, the total assets under management (AUM) for the entire industry actually fell from $184.3 billion to $178.0 billion, according to BlueVault Partners.

This kind of volatility is dangerous for anyone, but it’s especially harmful for retirees who were sold these products with the promise of safety and reliability.

The Dangers of Redemption "Gating"

One of the ugliest truths about the non-traded REIT market is a practice called "gating." This is when a REIT decides to suddenly suspend or severely limit its share redemption program, effectively locking investors in and preventing them from getting their money out.

We've seen major players like Blackstone (BREIT) and Starwood Real Estate Income Trust (SREIT) do exactly this, blaming market volatility. But the result is that billions of dollars in investor capital gets trapped, often at the worst possible time.

When redemption requests pile up and exceed a preset limit (usually 2% of NAV per month or 5% per quarter), the REIT can just shut the gate on any more withdrawals. This means an investor trying to cash out might only get a tiny fraction of their money back—or nothing at all. Their capital is held hostage.

This isn't some rare, hypothetical risk; it's a built-in feature of how these products are designed. It proves that your ability to access your own money is never guaranteed and can be turned off at any time by the very company you trusted with your investment.

The Illusion of "Covered" Distributions

Brokers love to talk about the attractive distributions that non-traded REITs pay out, framing them as a source of dependable income. The critical question they often gloss over is where that money is actually coming from. Are the payments being funded by real profits, or by something far less sustainable?

The key metric is distribution coverage, which tells you if a REIT's earnings are enough to cover its dividend payments. The data reveals a very disturbing trend.

In Q2 2025, for example, only four publicly offered non-traded REITs fully covered their distributions from their actual earnings. That means many others are likely funding their payments by:

• Borrowing money: Taking on debt to pay distributions is a house of cards waiting to collapse.
• Returning investor capital: In some cases, REITs are just giving investors their own money back and calling it a "distribution." It's nothing more than a partial refund.

This creates a dangerous illusion of success. An investor gets a steady check in the mail and thinks everything is going great, but the real value of their investment could be crumbling. This is especially concerning for investments like the KBS Growth & Income REIT, where understanding the true source of distributions is critical before something like a liquidation happens. You can learn more about how situations like the KBS Growth & Income REIT liquidation impacts investors in our related article.

The recent performance of the non-traded REIT market provides hard proof that these products carry serious, systemic risks. If you’ve experienced these problems—trapped funds, falling values, or promises that turned out to be false—it strongly suggests your losses are tied to the unsuitable nature of the investment itself, not just a down market.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

Your Legal Options for Recovering Investment Losses

If you’ve taken a major financial hit from investing in non-traded REITs, it’s natural to feel like you have nowhere to turn. But you have rights. There are established legal paths designed to help investors hold negligent brokerage firms accountable for their losses.

You don't have to just write off the losses, especially if they came from bad advice or your broker wasn't straight with you.

The main route for these kinds of disputes isn't a drawn-out lawsuit in state or federal court. Instead, most claims against brokerage firms are resolved through arbitration run by the Financial Industry Regulatory Authority (FINRA).

When you opened your brokerage account, chances are you signed an agreement that included a clause requiring any future disputes to be handled through FINRA's arbitration forum. This is often a more direct and efficient way to seek financial recovery compared to traditional litigation.

Understanding FINRA Arbitration

FINRA is the self-regulatory body that oversees the entire brokerage industry in the U.S., tasked with protecting investors and keeping the markets fair. Its dispute resolution forum is a specialized venue for investment-related conflicts.

Think of it as a private court just for investors. Here, neutral arbitrators with deep knowledge of securities laws and industry practices hear the case and make a binding decision. The process cuts out a lot of the procedural red tape of a typical lawsuit, which means a resolution can often be reached much faster.

For investors who have lost money in non-traded REITs, FINRA arbitration is the most common and effective tool for recovery. It provides a formal setting to present evidence that your financial advisor or their firm acted improperly, leading to your losses.

A successful case hinges on building a solid claim based on specific types of broker misconduct.

Common Legal Claims in Non-Traded REIT Cases

Your case will be built around well-established rules that brokers must follow. When they drop the ball, they and their firm can be held liable for the damage. These are the most common claims we see in non-traded REIT cases:

• Unsuitability: This is the big one. Brokers have a strict duty to recommend only investments that are a good fit for your financial situation, goals, risk tolerance, and need for cash. Pushing a retiree's nest egg into a high-risk, illiquid non-traded REIT is a textbook example of an unsuitable recommendation.
• Misrepresentation and Omissions: This happens when a broker either makes false statements or conveniently leaves out critical information. Did they call the non-traded REIT "safe as a bond"? Did they fail to disclose the huge upfront commissions? Did they forget to mention that the "distributions" were just your own money coming back to you, or worse, borrowed funds? That's misrepresentation.
• Breach of Fiduciary Duty: If your advisor is a fiduciary, they are legally required to act in your absolute best interest, period. Recommending a high-commission product like a non-traded REIT when a cheaper, better, more liquid alternative was available is a clear breach of that duty.
• Failure to Supervise: The brokerage firm itself has a duty to watch over its advisors and make sure they're following the rules. If a firm turns a blind eye while its brokers push unsuitable products or use deceptive sales tactics, the firm can be held liable for its failure to supervise.

These claims aren't just legal jargon; they are the tools we use to show that your losses weren't just bad luck in the market. They were the direct result of a broker's professional negligence.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

How a Securities Lawyer Can Fight for Your Recovery

It’s a devastating feeling to realize that a huge piece of your savings has vanished because of an unsuitable investment in non-traded REITs. While FINRA arbitration offers a path to get your money back, trying to handle that complex process by yourself is an uphill battle. Brokerage firms show up to these hearings with teams of defense lawyers who do one thing all day: deny your claim or reduce what they have to pay.

This is where having a seasoned securities lawyer in your corner changes everything. An attorney who specializes in this niche area of law can level the playing field. They live and breathe the intricate FINRA rules, know what arguments actually work with arbitrators, and have seen every trick in the book that brokerage firms use to avoid taking responsibility.

The Value of Specialized Experience

A securities law firm with a strong track record brings proven experience to your case, which is absolutely critical when dealing with a product as complex as a non-traded REIT. The right lawyer knows how to dig deep to find the evidence needed to build an airtight claim.

This isn't a simple process. It includes:

• Analyzing Documents: Your attorney will pour over every detail in your account statements, the original disclosure documents, and even internal brokerage firm emails to pinpoint where things went wrong.
• Building the Claim: They will put together a powerful Statement of Claim that clearly spells out the unsuitability, misrepresentation, or breach of fiduciary duty that led to your losses.
• Expert Representation: Your lawyer handles all the back-and-forth, represents you in hearings, and fights aggressively to get you the best possible outcome.

Having a legal expert who has already recovered millions for investors in your exact situation gives you more than just representation—it gives you confidence. They know how to prove that your losses weren’t just bad luck in the market but the direct result of your broker's negligence.

Working on a Contingency Fee Basis

For many investors, the fear of racking up huge legal bills is what stops them from seeking justice. Reputable securities law firms get this, which is why they almost always work on a contingency-fee basis.

What does this mean for you? You pay no upfront legal fees. The law firm only gets paid if they win your case and recover money for you. They then take a percentage of the final award or settlement. This model puts your interests and your lawyer's interests in perfect alignment—they are completely motivated to get the biggest recovery possible because their success is directly tied to yours.

This structure removes the financial burden of pursuing a claim, making justice accessible to any investor who has been wronged, no matter their financial circumstances.

If you’ve lost money in a non-traded REIT, you don’t have to go through this fight alone. The first step is simple and carries no risk.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

Frequently Asked Questions About Non-Traded REIT Losses

After seeing your investment in a non-traded REIT plummet, it's natural to have a lot of questions. Most investors are shocked and confused, and they need straight answers. Here, we tackle some of the most common questions we hear from people just like you.

What Makes Non-Traded REITs So Risky?

It really boils down to three major problems that are baked into the structure of these products.

First is their extreme illiquidity. Unlike a stock you can sell any time the market is open, there’s no public exchange for non-traded REIT shares. Your only way out is through limited redemption programs run by the REIT itself, and they can shut those down whenever they want, leaving your money completely trapped.

Second are the high upfront fees. Before your money even starts working for you, commissions and other costs can eat up 10-15% of it. That means you're starting in a significant hole that the investment has to climb out of just to break even.

Finally, there are opaque valuations. The REIT decides what its shares are worth, often only updating the price once a quarter or even once a year. This value isn't based on real-time supply and demand, which allows deep-seated problems to stay hidden for far too long.

How Do I Know if My Advisor Gave Me Bad Advice?

The core issue is almost always suitability. Financial advisors have a legal and ethical duty to recommend only those investments that fit your specific financial profile—your age, income, goals, and especially your tolerance for risk and need for liquidity.

A classic sign of an unsuitable recommendation is when a retiree who depends on their savings for income is sold a high-risk, long-term, illiquid product like a non-traded REIT. It's a fundamental mismatch.

Your broker likely gave you bad advice if they glossed over the risks, didn't fully disclose the massive commissions they were earning, pitched the REIT as a "safe" or "guaranteed" alternative to the stock market, or put too much of your nest egg into these products.

Can I Sue My Broker for My Losses?

Yes, you can absolutely take legal action to recover your money. However, it usually doesn't happen in a traditional courtroom.

When you opened your brokerage account, you almost certainly signed an agreement with a clause requiring all disputes to be handled through FINRA arbitration. This is a specialized forum designed to resolve claims against brokerage firms for misconduct like making unsuitable recommendations, misrepresenting an investment, or breaching their fiduciary duty. It's often a faster and more direct path to recovering your investment losses.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.