A publicly registered non-traded real estate investment trust (“REIT”), ARC NYC REIT was incorporated in December 2013 as a Maryland REIT 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.
In early 2018 — a Tel Aviv, Israel based private real estate investment fund, Comrit Investments 1 LP (“Comrit”) — launched an unsolicited tender offer to purchase up to 1.6 million shares of ARC NYC REIT for $14.68 per share. In response, ARC NYC REIT’s Board countered with a defensive tender offer, to purchase up to 1.9 million shares at a price of $15.50 per share. Both of these tender offers were set to expire on March 6, 2018.
By mid-February 2018, Comrit upped its offer price to $16.02 per share of ARC NYC REIT, and extended the expiration date on its unsolicited tender offer to March 20, 2018. In response to the increased Comrit tender offer, the ARC NYC REIT Board further increased their defensive tender offer price to $17.03 per share, and reduced the number of shares under its defensive tender to 1.6 million. This defensive tender offer is set to expire on March 20, 2018. Currently, Comrit and its affiliates own approximately 45,000 shares of ARC NYC REIT common stock.
ARC NYC REIT closed its IPO in May 2015, having raised a total of $772 million in investor equity. As of the end of the third quarter, 2017, ARC NYC REIT owns six investment properties in Manhattan, with an investment cost of $725 million. Investors who participated in the IPO paid $25 per share. Therefore, investors who elect to participate in ARC NYC REIT’s most recent defensive tender offer will be cashed out of their position at approximately $17 per share, sustaining losses of approx. 32% (net of distributions and commissions) on their initial investment.
Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like ARC NYC REIT generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.
Moreover, non-traded REITs are generally illiquid investments. 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, who may well have been uninformed of their liquidity issues, have come to learn too late that their ability to exit their investment position is limited.
If you have invested in ARC NYC REIT, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. Investors 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.