FINRA Arbitration

Published on: March 6, 2019

Inland Residential Properties Subject of Recent Tender Offer at $11.39/Share

Investors in Inland Residential Properties Trust Inc. (“Inland Residential”), a publicly registered non-traded real estate investment trust or REIT, have an opportunity to sell their shares- but at a price far below the REIT’s estimated per-share value of $16.06 a share, or its initial $25.00 a share offering price. MacKenzie Capital Management recently announced an unsolicited tender offer to purchase up to 200,000 shares of Inland Residential, at a price of $11.39 a share. The tender offer expires on March 22, 2019.

Apartment Building
Inland Residential is in the process of being liquidated, which means the company is selling off its assets and distributing the sales proceeds to shareholders pro rata. Inland Residential’s board estimates that the REIT’s shares have a net asset value or “NAV” of $16.06 as of February 1, 2019. This $16.06 estimated NAV is net of a distribution of $4.53 a share that Inland Residential previously paid to shareholders after the sale of one of the REIT’s properties.

Inland Residential Properties Trust’s $1 billion offering was declared effective in February 2015. The offering raised approximately $47 million, selling stock in Inland Residential for $25.00 a share. The REIT invests in multifamily housing in large metropolitan areas.

Published on: February 28, 2019

KBS REIT II Subject of Recent Tender Offer at $3.21/Share

by InvestorLawyers

Third-party investment firm CMG Partners LLC is reportedly offering to pay $3.21 per share of KBS Real Estate Investment Trust II (“KBS II”), a publicly registered non-traded real estate investment trust or REIT. KBS II is urging its stockholders not to sell their shares in the tender offer. In December 2018, KBS II announced an estimated $4.95 per share net asset value (“NAV”) for the REIT’s common stock. An NAV is an estimate of a stock’s value per share, based on the estimated value of a company’s property and assets less the estimated value of its liabilities, divided by the number of shares outstanding.

KBS II has reported paid shareholders $4.50 per share in special distributions from proceeds from its property sales. KBS II shares were sold in the REIT’s public offering for $10.00 a share. KBS II closed its public offering in December 2010 after selling $1.8 billion of shares to the public. Secondary market transactions in KBS II shares have reportedly priced the shares at between $4.00 and $4.06 a share.

Non-traded REITs pose a great deal of risks that are often not readily apparent to retail investors, and may not be adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs concerns their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like KBS II generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

Published on: December 26, 2018

Crash of the Condor: “Iron Condor” S&P Option Trading Strategy Marketed as Providing “Yield Enhancement” for Bond Investors Delivers Losses

by InvestorLawyers

An options trading program marketed as a “Yield Enhancement” strategy to brokerage customers of UBS, reportedly including risk averse investors with substantial bond portfolios, has suffered a hard landing in November and December as the so-called “Iron Condor” index options spread-based scheme has reportedly delivered losses in excess of 20% of the capital committed.

Iron Condor Basics
UBS’s Yield Enhancement Strategy (“YES”) reportedly has over $5 billion under management and over 1,200 investors. Investors in YES must agree to commit capital to the program, a so-called “mandate,” which may take the form of securities or cash. The committed capital provides collateral for options spread trading in each investor’s account. Although marketed to bond investors, the bonds held by each investor have nothing to do with the YES strategy other than serving as collateral for the options trades. Some investors pledge other securities or cash as collateral for the YES program.

The YES strategy entails generating option premium income through the strategic sale and purchase of SPX (S&P 500) index option spreads. This strategy, which is also sometimes referred to as an “Iron Condor” spread, involves writing two vertical options spreads – a bear call spread and a bull put spread. Thus, this strategy entails four different options contracts, each with the same expiration date and differing exercise prices. The “Iron Condor” strategy involves writing both a short put and a short call against the SPX, with these naked, or uncovered, options are designed to generate income for the investor via the receipt of premium. Further, the “Iron Condor” strategy involves writing both a long put and long call against the SPX, with these trades, or options legs, designed to mitigate the risk associated with the uncovered options positions.

Published on: December 18, 2018

Strategic Realty Trust Investors Seeking Liquidity Through Secondary Market Transactions May Face Principal Losses

by InvestorLawyers

Building Investors in Strategic Realty Trust, Inc. (“SRT” or the “Company” — formerly known as TNP Strategic Retail Trust, Inc.), a REIT based in San Mateo, California, may face principal losses if they attempt to sell their shares in the illiquid and fragmented secondary market. SRT invests in and manages a portfolio of income-producing properties, including various shopping centers, primarily in Western U.S. locations. Structured as a Maryland corporation that qualifies as a REIT, SRT was formed in September 2008. By August 2009, the Company had initiated its public offering at $10 per share for up to $1 billion in investor equity.

Retail investors commonly are solicited by financial advisors or stockbrokers to invest in non-traded REITs like SRT, which typically are sold by independent broker-dealer firms. Unfortunately, customers who purchased shares through SRT’s IPO upon the recommendation of a broker may, in certain instances, have been solicited via misleading sales presentations that failed to adequately disclose the complex nature of the investment, its negative features, and its risks. Risks associated with non-traded REITs include high up-front commissions (as high as 7-10%), high due diligence and administrative expenses, risk of loss of principal, and illiquidity.

Investors in non-traded REITs including SRT may come to find out too late that their shares are illiquid, and their options to exit the investment are limited. Briefly, investors seeking liquidity may: (i) seek to redeem their shares directly with the sponsor (SRT suspended its redemption program altogether from January 15, 2013 – April 1, 2015), (ii) be presented with limited, market-driven opportunities to tender their shares to a third party investment firm (typically at a disadvantageous price), or (iii) sell their shares on a limited and fragmented secondary market specializing in creating a trading platform for illiquid securities.

Published on: November 27, 2018

Recent Tender Offer and Secondary Pricing for Summit Healthcare REIT Shares Suggests Value of Less Than $2.00 a Share

by InvestorLawyers

Based on publicly available information, including recent SEC filings, shares of Summit Healthcare REIT, Inc. (“Summit” or the “Company”) may have a value of less than $2.00 a shares – far below the initial offering price of $8.00 share and also less than the $2.80 NAV provided by Summit.

Headquartered in Lake Forest, CA, Summit is structured as a Maryland corporation that qualifies as a real estate investment trust (“REIT”) for tax purposes. Formed in 2004, Summit was formerly known as Cornerstone Core Properties REIT, Inc. Following a strategic repositioning of the Company’s property portfolio to focus on healthcare real estate and related assets, the name change was formally adopted in October 2013.

On June 21, 2018, a third party known as MacKenzie Realty Capital, Inc. reportedly closed on a tender offer, purchasing some 41,566 shares of Summit at a price of $1.56 per share. As of December 31, 2017, Summit reported a net asset value (NAV) of $2.80 per share.

Published on: November 21, 2018

Recent Secondary Market Pricing for Cole Credit Property Trust V Suggests Investors May Have Incurred Principal Losses

by InvestorLawyers

investing in real estate through a limited partnership Recent pricing on shares of Cole Credit Property Trust V, Inc. (“CCPT V” or, the “Company”) – at reported prices of $17.25-$17.75 – suggests that investors who chose to sell their shares on a limited secondary market may have sustained considerable losses of up to 30% (excluding any distributions received to date). Formed in December 2012, CCPT V is structured as a Maryland corporation. As a publicly registered, non-traded real estate investment trust (“REIT”), CCPT V is focused on the business of acquiring and operating “a diversified portfolio of retail and other income-producing commercial properties.” As of October 31, 2018, the Company’s real estate portfolio consisted of 141 properties across 33 states, with portfolio tenants spanning some 26 industry sectors.

The shares of CCPT V, a publicly registered, non-traded REIT, were offered to retail investors in connection with CCPT V’s initial offering, which was priced at $25 per share. The Company launched its initial offer in March 2014, and as of the second quarter of 2018, had raised $434 million in investor equity through the issuance of common stock.

Some retail investors may have been steered into an investment in CCPT V by a financial advisor, without first being fully informed of the risks associated with investing in non-traded REITs. For example, one initial risk that is often overlooked concerns a non-traded REIT’s characteristic structure as a blind pool. In the case of CCPT V, its blind pool offering means that not only were shares issued to public investors for a REIT lacking any previous operating history, but moreover, CCPT V did not immediately identify any of the properties that it intended to purchase.

Published on: November 13, 2018

Liquidity Options are Limited for FS Energy and Power Fund Investors

by InvestorLawyers

Oil Drilling Rigs Investors in FS Energy and Power Fund (“FSEP” or the “Company”) will likely encounter difficulty in selling out of all or a substantial portion of their FSEP position, in the event they seek to redeem their shares directly with FSEP’s sponsor, Franklin Square. Headquartered in Philadelphia, PA, FSEP was formed as a Delaware Statutory Trust in September 2010, and subsequently commenced its investment operations on July 18, 2011. Structured as a regulated investment company, or RIC, for federal tax purposes, FSEP qualifies as a business development company (“BDC”) under the Investment Company Act of 1940.

Upon information and belief, as a publicly registered, non-traded BDC, FSEP was marketed and recommended to numerous retail investors nationwide. As set forth in its most recent quarterly 10-Q as filed with the SEC, “The Company’s investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power industry.”

As we have highlighted in recent blog posts, BDCs have been around since the early 1980’s, when Congress first enacted legislation amending federal securities laws allowing for BDCs — which are simply types of closed-end funds — to make investments in developing companies and firms that would otherwise have difficulty accessing financing. Because they provide financing solutions for smaller, private companies, BDCs have been likened to private equity investment vehicles for retail investors in various marketing pitches by BDC sponsors and the financial advisors who recommend these financial products.

Published on: November 7, 2018

Black Creek Diversified Property Fund Shares Secondary Market Trading Range Reportedly $6.95-$7.05 a Share- Investors May Have Losses

by InvestorLawyers

Money Maze
Investors in Black Creek Diversified Property Fund, Inc. (“Black Creek” or the “Company”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if the recommendation to purchase Black Creek was unsuitable, or if the broker or financial advisor who recommended the investment made a misleading sales presentation. Black Creek changed its name as of September 1, 2017- it was formerly known as Dividend Capital Diversified Property Fund. As of June 2017, Black Creek owned 51 properties worth an estimated $2.3 billion in 19 geographic markets in the United States.

Black Creek was formed in 2005 and is a NAV-based perpetual life REIT primarily focused on investing in and operating a diverse portfolio of real property. As a NAV-based perpetual life REIT, Black Creek states that it intends to conduct ongoing public primary offerings of its common stock on a perpetual basis. The Company states that it also intends to conduct an ongoing distribution reinvestment plan offering for Black Creek stockholders to reinvest distributions in the REIT’s shares.

Because Black Creek is registered with the SEC, the REIT was permitted to sell securities to the investing public at large, initially offering shares at $10.00 a share. However, Central Trade & Transfer, a secondary market web site, lists a trading range for Black Greek shares of between $6.95 and $7.05 a share, even though Black Creek lists its estimated net asset value (NAV) per share as $7.49 a share. Based on either figure, it appears that investors at the initial $10.00 a share offering price have incurred significant principal losses.

Published on: October 26, 2018

American Finance Trust (AFIN) Share Price Continues to Languish- Shares Subject to Tender Offer

by InvestorLawyers

As previously reported, American Finance Trust, Inc. (“AFIN” or the “Company”), formerly known as American Realty Capital Trust V, Inc., listed its shares on Nasdaq Global Select Market (“Nasdaq”), under the symbol AFIN effective July 19, 2018.

The former non-traded REIT’s shares are therefore publicly traded, but not all shares are yet saleable. In connection with the listing, the Company’s shares were divided into three classes: Class A, Class B-1 and Class B-2. American Finance Trust has listed its Class A and former Class B-1 shares on NASDAQ, and the remaining Class B-2 shares are expected to list by January 2019. Shares of the non-traded REIT originally sold for $25.00 each, and the company terminated its share repurchase program at the end of June prior to listing on Nasdaq.

Against this backdrop, a private equity fund known as MacKenzie Realty Capital Inc. has offered to purchase up to 400,000 shares of each class of company common stock. MacKenzie is offering $15.00 per Class A share and $14.01 per Class B-1 share, and will purchase up to 400,000 shares of each class. The offer expires on November 16, 2018. Of note, these prices are above the current market price of AFIN shares on NASDAQ. Although most investors paid $25.00 a share for AFIN shares in the Company’s offerings, AFIN shares have consistently traded well below that price level since the Nasdaq listing. AFIN shares have traded as low as $13.15 a share, and closed on October 25, 2018 at $13.85 a share. The performance of the Company since it started trading on July 19 may have caught some investors by surprise, since AFIN published an “estimated per share” net asset value of $23.56 in June 2018.

Published on: September 25, 2018

Hospitality Investors Trust Inc. (Formerly ARC Hospitality Trust) Announces $9/Share Buyback

by InvestorLawyers

Hospitality Investors Trust Inc. (“HIT”, formerly known as ARC Hospitality Trust, Inc.) has announced that it is buying back shares for $9.00 a share, which is a discount of approximately 35% to what it the company claims is the shares’ net asset value (NAV) of $13.87 a share. It is also a far cry from the $25.00 a share price at which most investors initially acquired shares.

Building Demolished
HIT is a non-traded real estate investment trust (REIT) focused on ownership of hotels and other lodging properties in the United States. As a publicly registered non-traded REIT, Hospitality Investors Trust was permitted to sell shares to the investing public at large, oftentimes upon the recommendation of a broker or financial advisor. The REIT sold shares to the public for $25.00/share. Some investors may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

HIT’s board has adopted the share repurchase program, effective October 1, 2018, for shareholders who desire immediate liquidity, and recommends that investors do not sell their shares unless they need immediate liquidity because (according to HIT) the initial repurchase price is well below the current and potential long-term value of the shares. Shares bought at any time are eligible for repurchase under the program, and the first repurchase date under the to the program is scheduled for December 31, 2018.