Investor Alert: Redemption Limits and Liquidity Pressure Hit Non-Traded REITs and BDCs

A series of recent developments across the alternative investment market is raising renewed concerns about liquidity, valuation transparency, and investor risk in non-traded REITs and business development companies (BDCs).

Large sponsors including Blue Owl Capital and KKR have faced scrutiny as investors encounter redemption restrictions and capital access delays in private credit and real estate vehicles (Reuters: www.reuters.com/markets/us/blue-owl-real-estate-fund-redemptions-2025/ ; Reuters: www.reuters.com/markets/us/kkr-real-estate-redemptions-pressure-2025/).

At the same time, income-focused products such as those associated with NexPoint Capital and legacy non-traded REIT structures like Healthcare Trust Inc. (now operating as National Healthcare Properties) have faced distribution changes, valuation adjustments, or structural transitions, further highlighting the risks in these vehicles (Reuters: www.reuters.com/markets/us/non-traded-reits-redemptions-liquidity-2025/).

Redemption Limits Are Functioning as Designed—but Not Always Understood

Many non-traded REITs and BDCs include quarterly or monthly redemption caps, often limiting withdrawals to a small percentage of net asset value. While these mechanisms are disclosed in offering documents, they can come as a surprise to investors who were led to believe these investments offered steady income with reasonable liquidity.

The U.S. Securities and Exchange Commission has repeatedly warned that non-traded REITs carry significant liquidity risk and valuation uncertainty, particularly because shares are not listed on public exchanges (SEC Investor Bulletin: www.sec.gov/oiea/investor-alerts-and-bulletins/ib_nontradedreits).

Similarly, the Financial Industry Regulatory Authority has issued guidance emphasizing that these products are complex, illiquid, and often sold with high commissions, which can create conflicts of interest (FINRA: www.finra.org/investors/insights/non-traded-reits).

Structural Risks Are Now Materializing

As market conditions tighten, several risks embedded in these products are becoming more visible:

• Liquidity constraints during periods of increased redemption demand
• Internal valuations that may lag or diverge from real market conditions
• Distribution sustainability concerns, particularly in leveraged or income-focused funds
• Concentration risk, where investors hold large allocations to illiquid alternatives

These issues are not theoretical—they are now directly impacting investor access to capital.

Legal Implications for Investors

Financial advisors recommending non-traded REITs and BDCs must ensure that these investments are appropriate based on the investor’s financial situation, objectives, and liquidity needs.

Potential claims may arise where:

• Liquidity limitations were not clearly explained
• Risks were downplayed or omitted
• Portfolios were overconcentrated in illiquid alternatives
• Investors relied on representations of “stable income” or “low volatility”

Such disputes are commonly pursued through arbitration before FINRA.

Sonn Law Group Is Investigating

Sonn Law Group is actively investigating claims involving non-traded REITs, BDCs, and other alternative investments that may have been unsuitable or improperly recommended.

If you are experiencing redemption delays, valuation concerns, or unexpected losses in these investments, you may have legal options to pursue recovery.