Atlanta's Leo Wells, head of Wells Real Estate Funds, will not be "register[ing] any new investment products" for the time being. Leo Wells is one of the most well-known, outspoken, issuers of non-traded REITs. Thus, his timely "pause" from the industry is noteworthy.
Leo Wells cites the lack of regulatory clarity, marketplace clarity, and uniform guidelines as the reasons for not registering any new REITs. Given recent regulatory issues surrounding these products, however critics are questioning his true motives.
The non-traded REIT industry is currently under heavy scrutiny from regulators and unhappy investors who have seen their retirement assets vanish. For example, Wells Timberland REIT dropped 35% in value in December 2012. Non-traded REITs lack transparency, guidelines, valuation standards, and liquidity making them unsuitable for many investors.
One reason for the pause may be that non-traded REITs are under even higher scrutiny after being named in FINRA's 2013 regulations and priorities examination letter. Critics of non-traded REITs believe that the true reason that Wells has stopped issuing new products is that, given the risk of investing in non-traded REITs, financial advisors cannot sell them appropriately to investors or in compliance with securities laws anymore.