Now in an article titled "Blind Faith," Forbes (Sep 1, 2003) sheds some light on Wells, which is a private REIT. The share price has been fixed by the company at $10 since 1998. Publicly traded office REITs would have been a better investment over this time period with a return of 11.5% (5.4% appreciation plus a 6.1% dividend). Wells only guarantees to redeem 3% of its shares every year, which makes the shares pretty illiquid.

Annually Wells charges a management fee of 4.5% of the rent roll, which, the article states, real estate pros find "way high." And, according to Forbes, "The safety of Wells' dividend has deteriorated alarmingly. Last year's 73-cent dividend was not covered by FFO (Funds from Operations), so Wells had to borrow $8 million short term to cover it." Uh-oh.

On a $10,000 investment, why would you effectively pay Wells an upfront fee of $1,600, rather than buy, say, Equity Office (currently yielding 7.3%) for a $29.95 commission (Charles Schwab's online trading fee)? Here's the answer according to Forbes quoting Jon Forsheim of Green Street Advisors, "Private REIT shares are sold, not bought." That's why Wells marshalls an army of sales folks -- 39 affiliated brokers and 3,000 independent reps.

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