Investor Lawyers Blog
Investors in American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the broker or financial advisor. According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.
As recently reported, the Board of ARC NYC REIT has elected to suspend distributions, effective March 1, 2018. According to the Board, the suspension of future distributions was made in order to enhance the non-traded REIT’s ability to execute on acquisitions, as well as conduct repositioning and leasing efforts related to its property portfolio. As a publicly registered non-traded REIT, ARC NYC REIT was incorporated in December 2013 and is registered with the SEC. Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager at $25 per share. Secondary market transactions in ARC NYC REIT shares have reportedly taken place at prices of between $13.75 and $14.25 a share (although the sponsor indicates the NAV of ARC NYC REIT shares is $20.26 a share).
Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs like ARC NYC REIT, have limited options when it comes to exiting their investment position. For example, investors in non-traded REITs typically can only redeem shares directly with the sponsor on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares at a disadvantageous price.
In general, many non-traded REITs pose significant risks, including their initial structure, as well as the nature of the income paid to investors. As to their initial structure, many non-traded REITs are blind pools, meaning that an investor considering a capital commitment may have little or no no information as to the nature and quality of the assets to be purchased by the REIT. With respect to the nature of distributions paid by non-traded REITs, often distributions are paid to investors in part via “return of capital” rather than distribution of income from underlying assets, meaning that investors are essentially being paid back, in part, with their own initial capital contribution.
Investors in ARC NYC REIT, or another non-traded REIT who have suffered losses in connection with their investment (or are currently unable to exit their illiquid investment position without incurring losses) may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.