Non-Traded REITs

Published on: March 7, 2018

Investment Firm Offers $12.17/Share For The Parking REIT, Inc. Shares

Money Maze Real estate investment firm MacKenzie Realty Capital (“MacKenzie”) is offering to purchase shares of The Parking REIT, Inc. (f/k/a MVP REIT II, Inc., hereinafter “The Parking REIT”) for $12.17 per share. The pricing of MacKenzie’s unsolicited tender offer suggests that investors who wish participate in order to generate liquidity will lose money on their investments based on their initial purchase price.

As recently reported, The Parking REIT has merged with MVP REIT, Inc. (“MVP REIT I”), and as a result of the merger, the newly formed entity holds a real estate investment portfolio consisting of 44 parking facilities across 15 states, with an estimated aggregate asset value of $280 million.

The Parking REIT is a publicly registered non-traded real estate investment trust (“REIT”). Unlike exchange traded REITs, non-traded REITs are particularly complex and risky investment vehicles that — as their name implies — do not trade on a national securities exchange. Unfortunately, retail investors are often uninformed by their broker or money manager of the illiquid nature of non-traded REITs. Investors may be unaware that their options to sell shares are limited and often disadvantageous as to pricing and timing, and generally include direct redemption with the issuer, potential sale of shares through a fragmented and illiquid secondary market, or in limited instances — a tender offer by a third-party.

Published on: March 5, 2018

Strategic Realty Trust May Give Rise to Arbitration Claims

by InvestorLawyers

House in Hands Investors in Strategic Realty Trust, Inc. (“SRT”) may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their SRT 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 financial advisor. SRT, formerly known as TNP Strategic Retail, is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that seeks to invest in certain West Coast urban and street retail properties.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by stockbrokers or financial advisors. Frequent selling points for non-traded REIT investments include presenting these securities as steady income-producing investments and as solid long-term investments due to their underlying investments in real estate. Some investors may not have been informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature.

Currently, investors who wish to sell their shares of SRT have limited options available to exit their investment position. For example, SRT suspended its share redemption program effective as of January 15, 2013. During the years ended 2013 and 2014, SRT did not redeem any shares under the redemption program. Thereafter, on April 1, 2015, SRT’s Board approved the reinstatement of the share redemption program, but only as it relates to the death or qualifying disability of the shareholder.

Published on: March 1, 2018

Inventrust Shares Subject of $1.49 A Share Tender Offer- Investors Face Heavy Losses

by InvestorLawyers

Money Bags In the past six months alone, several third-party real estate investment firms have launched unsolicited tender offers to purchase InvenTrust Properties Inc. (“InvenTrust”) shares at a significant discount. InvenTrust investors may have arbitration claims to be pursued before FINRA, in the event that their 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. According to its website, InvenTrust is a “[p]remier, pureplay REIT that owns, leases, redevelops, acquires and manages open-air centers in key growth markets…”

Based on publicly available information through filings with the SEC, InvenTrust was incorporated as Inland American Real Estate Trust, Inc. in October 2004 as a Maryland REIT (the company changed its name in April 2015). As a publicly registered, non-traded REIT, InvenTrust was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager. Through the initial offering, shares were purchased at $10 per share.

Recently, several unsolicited tender offers have been made by certain third-party real estate investment firms for InvenTrust shares. For example, on or about September 2017, MacKenzie Realty Capital (“MacKenzie”) launched an unsolicited tender offer to purchase up to 10,000,000 shares at a price of $1.49 per share. More recently, Liquidity Partners Trust I, filed disclosure paperwork with the SEC in connection with their tender offer for purchase of up to 2,000,000 shares of InvenTrust at a price of $1.55 per share.

Published on: February 28, 2018

Investors In Non-Conventional Investments and REITs Face Suspended Redemptions

by InvestorLawyers

money whirlpool Investors who have recently tried to redeem investments made in real estate investment trusts (REITs) or limited partnerships (LPs) may have encountered an unpleasant surprise – many sponsors of such investments have ended or suspended redemption programs for investors.

Redemption programs are mechanisms by which investors in non-publicly traded securities may sell their securities back to the sponsor or the company for a stated price, sometimes with certain restrictions.

Redemption programs in many of the larger-capitalization REIT and LP investments recommended by financial advisors and stockbrokers have been suspended in recent years. Since these investments are not generally traded on any conventional exchange, there may be a limited or no market should you want or need to liquidate your investment in these non-traded financial products.

Published on: February 28, 2018

Everest REIT Investors Launch Tender Offer for Griffin-American Healthcare REIT III Shares – Investors May Have Arbitration Claims

by InvestorLawyers

Apartment Building Investors in Griffin-American Healthcare REIT III (“GAH REIT III”), may have FINRA arbitration claims, if their 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. GAH REIT III is sponsored by American Healthcare Investors and Griffin Capital Company, LLC, firms that according to publicly available information have completed transactions totaling approximately $30 billion in commercial real estate investments since 1990, of which approximately $8 billion in transactions have been healthcare-related.

GAH REIT III is a publicly registered non-traded real estate investment trust (“REIT”) incorporated in January 2013 as a Maryland REIT and is registered with the SEC. As such, GAH REIT III was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager.

Recently, third party real estate investment firms Everest REIT Investors I LLC and Everest REIT Investors II LLC launched a $6.5 million tender offer for up to 1 million shares of GAH REIT III, at $6.50 per share. The offer is set to expire on March 20, 2018. Currently, Everest and its affiliates own 19,700 shares of GAH REIT III.

Published on: February 26, 2018

ARC NYC REIT Increases its Defensive Tender Offer – Investors May Have Arbitration Claims

by InvestorLawyers

Building Demolished 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.

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.

Published on: February 22, 2018

American Finance Trust Shares Subject of Competing Tender Offers

by InvestorLawyers

Apartment Building Investors in American Finance Trust (“AFIN”), formerly known as American Realty Capital Trust V, Inc., may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their AFIN position was recommended by an investment advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or financial advisor. According to its website, AFIN is structured to protect shareholder capital and produce stable cash distributions through the acquisition and management of a diversified portfolio of commercial properties leased to investment grade tenants.

AFIN is a publicly registered non-traded real estate investment trust (“REIT”) that is based in New York, NY. Incorporated in early 2013 as a Maryland REIT, AFIN is registered with the SEC, and therefore, the non-traded 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.

According to publicly available information through the SEC, MacKenzie Capital Management LP (“Mackenzie”) recently made an unsolicited tender offer to purchase up to 1 million shares of AFIN common stock at $13.66 per share. This tender offer is set to expire on March 22, 2018, unless extended.

Published on: January 15, 2018

KBS REIT II Investors May Have Arbitration Claims

by InvestorLawyers

Money in Wastebasket Investors in KBS Real Estate Investment Trust II, Inc. (“KBS II” 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 KBS II was unsuitable, or if the broker or financial advisor who recommended the investment made a misleading sales presentation. KBS II was formed as a Maryland REIT on July 12, 2007. The Company is based in Newport Beach, CA, and in line with its business model, is “[i]nvested in a diverse portfolio of real estate and real estate-related investments. As of September 30, 2017, the Company owned ten real estate properties (consisting of nine office properties and an office campus consisting of eight office buildings).”

Because KBS II is registered with the SEC, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who purchased shares through the initial public offering (“IPO”) upon the recommendation of a broker or financial advisor. Pursuant to the Company’s offering, 182,681,633 shares of KBS II common stock were sold through its primary offering, for gross proceeds of $1.8 billion. Further, the Company sold 30,903,504 shares of common stock under its dividend reinvestment plan, for gross proceeds of $298.2 million. According to publicly available information through filings with the SEC, as of September 30, 2017, the Company had redeemed 25,723,025 shares sold under the offering for $244.6 million.

Non-traded REITs, such as KBS II, are complex and risky investment vehicles that do not trade on a national securities exchange. Unfortunately, retail investors are often uninformed by their broker or money manager of the illiquid nature of non-traded REITs, meaning that investors who wish to sell their shares can only do so through a direct redemption with the issuer or through a fragmented and illiquid secondary market.

Published on: January 2, 2018

ARC Healthcare Trust III Approves its Plan of Liquidation

by InvestorLawyers

Building Demolished As we discussed in a recent blog post, investors in American Realty Capital Healthcare Trust III Inc. (“ARC HT III”) may be able to recover losses on their investment in FINRA arbitration. Sponsored by AR Global, ARC HT III is a publicly registered non-traded real estate investment trust (“REIT”) based in New York, NY. As its name implies, this non-traded REIT is primarily focused on investing in healthcare-related assets including medical office buildings, seniors housing and other healthcare-related facilities.

ARC HT III raised approximately $168 million in investor equity prior to cancellation of its offering, due in large part to a series of scandals concerning AR Global. As recently as July 2017, ARC HT III announced an estimated net asset value (“NAV”) per share of $17.64. Investors who participated in the offering bought in at $25 per share. Additionally, on July 18, 2017, the ARC HT III Board determined that it would cease paying distributions beginning in August 2017.

One of the risks associated with investing in non-traded REITs concerns the viability of the distribution payment. At its discretion, the board of a non-traded REIT may well decide to substantially reduce, or altogether suspend, payments of distributions to investors. This is troubling, particularly because many investors are advised to purchase non-traded REITs as a means of earning enhanced income. Another risk associated with investing in non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition, non-traded REITs like ARC HT III generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. These fees act as an immediate ‘drag’ on any investment and can serve to compound losses.

Published on: December 26, 2017

Investors in American Finance Trust May Have Arbitration Claims

by InvestorLawyers

Apartment Building American Finance Trust (“AFIN”), formerly known as American Realty Capital Trust V, Inc., is a publicly registered non-traded real estate investment trust (“REIT”) that is based in New York, NY. Incorporated on January 22, 2013 as a Maryland REIT, AFIN is a diversified REIT with a focus on retail properties. As of September 30, 2017, AFIN owned a total of 517 properties. Because AFIN is registered with the SEC, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.

AFIN commenced its initial public offering in April 2013, which closed approximately six months later, raising $1.6 billion in investor equity. Investors who participated in the IPO paid $25 per share. In February 2017, AFIN completed a merger with another affiliated non-traded REIT: American Realty Capital – Retail Centers of America.

Non-traded REITs pose many risks that may not be readily apparent to 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 AFIN 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.