Investors in United Development Funding (UDF) Real Estate Investment Trusts (REITs) have lost approximately $1 billion since the FBI raided the UDF offices and the REITs began to collapse in early 2016.
A REIT is a type of investment vehicle that functions as a company which owns real estate investments, typically large scale real estate investments or diverse real estate investments. The REIT structure can offer an investor an opportunity to invest in real estate at a lower cost than they might otherwise have.
Among the downside risks, however, are volatility (including substantial short-term losses) and for numerous REITs the lack of a publicly-traded exchange. These “nontraded” REITs present significant liquidity risk; meaning investors can have a difficult time selling the REITs in normal conditions and can find themselves “stuck” with a troubled REIT like UDF.
Stockbrokers have a duty to make certain that any recommended investment strategy is suitable for a customer. This includes (among numerous factors): making certain that a customer does not get over-exposed to one particular investment or type of investment, that the customer can afford the risk presented by a given investment, and that the customer’s investment goals and time horizon are compatible with the recommended product. Brokers are also obligated to explain the features and risks of the investments they recommend.
Many investors purchasing REITs like UDF were not aware that the REITs were subject to volatility and liquidity risks and found themselves caught totally by surprise when they were stuck with their UDF REITs as they collapsed.
UDF investors have already filed class-action lawsuits against UDF to attempt to recover their overwhelming losses. Investors have the right to opt out of those class actions and pursue individual claims against UDF and/or a stockbroker who misrepresented the UDF REITs or recommended them to a client for whom they were unsuitably risky. While the Frankowski Firm cannot and does not guarantee an outcome in any individual case, generally speaking, Claimants with significant losses have achieved a more favorable result by filing an individual claim rather than participating in the class.