The largest nontraded real estate investment trust in the industry, Inland American Real Estate Trust Inc., is under investigation by the Securities and Exchange Commission for potential violations of federal securities laws regarding its fees and administration.
Inland American, which has $11.2 billion in real estate assets, made the SEC investigation known Monday in its quarterly report. The SEC's investigation centers on common criticisms around the nontraded-REIT industry, namely the details of its fees.
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Inland American “has learned that the SEC is conducting a nonpublic, formal fact-finding investigation to determine whether there have been violations of certain provisions of the federal securities laws,” the company said Monday in its quarterly report. Those potential violations are “regarding the business manager fees, property management fees, transactions with affiliates, timing and amount of distributions paid to investors, determination of property impairments, and any decision regarding whether the company might become a self-administered REIT.”
“Inland American has not been accused of any wrongdoing and we are fully cooperating with the SEC," said Nicole Spreck, a company spokeswoman. “Inland American does not believe it has done anything wrong and we continue to execute against our business plan and strategy. Beyond that we really can't comment on the investigation itself because it is a confidential process at the request of the SEC and we plan to honor that request. “
The nontraded-REIT industry recently has seen a number of REITs cut their estimated values and has drawn increased scrutiny from securities regulators over the issue.
Inland American is one of five REITs that have been sponsored by The Inland American Real Estate Group of Companies Inc., according to that company's website. At the end of last year, Inland American directly or indirectly owned 964 properties, representing 49 million square feet of retail industrial and office space. The REIT also owned 9,500 apartment units and 15,600 hotel rooms.
A related REIT, Retail Properties of America Inc., has also seen difficulties recently. Formerly known as Inland Western Retail Real Estate Trust Inc., Retail Properties of America had an initial public offering last month in which its shares were listed at an equivalent of $3.20 per share. Last June, that REIT's management said its estimated value was $6.95 per share.