Non-Traded REITs

Published on: October 26, 2017

Vestin Realty Mortgage I and II and MVP REIT I and II Investors May Have Arbitration Claims

Building Explodes Investors in certain REITs based in Las Vegas may have arbitration claims against brokers or financial advisors if a FINRA-registered broker dealer that recommended the investment did not live up to its obligations under applicable rules. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.

Vestin Realty Mortgage I (Previously Vestin Fund I and DM Mortgage Investors)

Vestin Realty Mortgage I (VRM I) was formerly known as DM Mortgage Investors. On March 17, 2000, DM Mortgage Investors registered up to 100,000,000 shares with the Securities and Exchange Commission (SEC) at $1 per share. This registration was later amended to cover the issuance of up to 10,000,000 shares at $10 per share. On June 29, 2001, DM Mortgage Investors changed its name to Vestin Fund I, and later changed its name to Vestin Realty Mortgage I (VRM I) and began trading on the Nasdaq Capital Market on June 1, 2006. In March 2012, VRM I ceased being a REIT, but continued trading on the Nasdaq.

Published on: October 25, 2017

Hospitality Investors Trust Inc. (formerly ARC Hospitality Trust) Subject Of $5.53 A Share Tender Offer

by InvestorLawyers

Hospitality Investors Trust Inc. (formerly known as ARC Hospitality Trust, Inc.) 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.

According to reports, Hospitality Investors Trust has terminated redemptions, and the company no longer pays a dividend. The company must get approval from Class C units before doing future redemptions, and according to SEC filings it “no longer pays distributions.” The NAV of Hospitality Investors Trust has reportedly decreased by 47% since initial issuance to just $13.20, down from the $25 initial purchase price. Thus, investors who bought shares at the $25.00 offering price have experienced a loss of nearly half of their principal.

On October 23, 2017, MacKenzie Realty Capital, Inc. reportedly extended a tender offer to purchase shares of Hospitality Investors Trust Inc. for $5.53 a share- suggesting that shares may be worth even less than the REIT’s reported NAV.

Published on: October 25, 2017

Investors in ARC Healthcare Trust III May Have Arbitration Claims

by InvestorLawyers

Money In Wind Investors in American Realty Capital Healthcare Trust III Inc. (“ARC HT III”) may be able to recover losses on their investment in FINRA arbitration. ARC HT III is a publicly registered non-traded real estate investment trust (“REIT”) sponsored by AR Global and based in New York, NY. As its name suggests, this non-traded REIT is focused primarily on investing in healthcare-related assets including medical office buildings, seniors housing and other healthcare-related facilities. ARC HT III currently owns a portfolio of 19 properties purchased for a total of $128.3 million.

ARC HT III raised approximately $168 million in investor equity prior to cancellation of its securities offering, due in large part to a series of ARC related scandals. On July 19, 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.

On December 21, 2017, ARC HT III shareholders will vote at the annual meeting to be held at 4pm at The Core Club in New York, NY, on an important proposal. Specifically, shareholders will be asked to vote on a plan of liquidation and dissolution of the company. Pursuant to the proposed plan of liquidation, ARC HT III shareholders will receive $17.67 – $17.81 per share of stock held. As part of the contemplated liquidation, the non-traded REIT anticipates paying an initial liquidation distribution of $15.75 per share, expected to be paid within two weeks of closing the asset sale. In connection with the transaction, ARC HT III will sell its underlying property portfolio for $120 million to the affiliated entity – Healthcare Trust Inc. In order for the plan of liquidation to become effective, shareholders must vote to approve both the contemplated purchase of ARC HT III by Healthcare Trust Inc., as well as the proposal to liquidate the company.

Published on: October 13, 2017

Summit Healthcare REIT Subject of $1.34 a Share Tender Offer

by InvestorLawyers

Summit Healthcare REIT Inc. (“Summit”), a publicly registered non-traded real estate investment trust, has recommended to shareholders that they reject a third-party tender offer by MacKenzie Realty Capital to purchase shares for $1.34 a share. The REIT estimates its net asset value per share as $2.53, and therefore says that the $1.34 a share offer is lower than fair value. Summit’s most recent estimated net asset value per share is $2.53, as of December 31, 2016.

As a publicly registered non-traded real estate investment trust (“REIT”), Summit was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares upon the recommendation of a broker or financial advisor. Unfortunately for many non-traded REIT investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

One of the more readily-apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%). These fees act as an immediate ‘drag’ on any investment and can compound losses. Further, another significant and less readily-apparent risk associated with non-traded REITs has to do with liquidity. Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange, leaving investors with limited options if they wish to sell their shares after the initial purchase- especially if the issuer is not redeeming shares.

Published on: October 10, 2017

Investors in CNL Growth Properties May Have Arbitration Claims

by InvestorLawyers

CNL Growth Properties, Inc. (“CNL Growth”) is a publicly registered non-traded real estate investment trust (“REIT”) based in Orlando, FL. Because CNL Growth 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 financial advisor. Unfortunately for many CNL Growth investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

One of the more readily apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%). These fees act as an immediate ‘drag’ on any investment and can compound losses. Further, another significant and less readily apparent risk associated with non-traded REITs has to do with liquidity. Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange. As a result, many investors in non-traded REITs who were uninformed of their liquidity issues, have come to learn that they can only redeem shares of the investment directly with the sponsor (and only then on a limited basis, and often at a disadvantageous price), sell the shares through a limited and fragmented secondary market, or alternatively, sit and wait for the occurrence of a future “liquidity event” such as listing on a national exchange, a merger, or liquidation.

CNL Growth, formerly known as Global Growth Trust, commenced its $1.5 billion IPO in October 2009. By April 2013, CNL Growth had concluded its offering, priced at $10 per share, after a capital raise of approximately $94.2 million. Shortly thereafter, in August 2013, CNL Growth initiated a follow-on offering and refined its investment strategy to focus on multifamily development projects in the Southeast and Sun Belt regions of the U.S. These combined offerings raised approximately $208 million in investor capital.

Published on: October 4, 2017

Investors in Strategic Realty Trust May Have Arbitration Claims

by InvestorLawyers

Strategic Realty Trust (“SRT,” formerly known as TNP Strategic Retail) is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that invests in and manages a portfolio of income-producing real properties including various shopping centers located primarily in the Western United States.

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Market Analyze.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by their broker or money manager based on the investment’s income-producing potential. Unfortunately, many investors were not 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 may only do so through direct redemption with the issuer or by selling shares on an illiquid secondary market, such as Central Trade & Transfer.

Published on: October 4, 2017

Lightstone Value Plus REIT V and American Finance Trust Investors May Have Arbitration Claims

by InvestorLawyers

Investors in American Finance Trust and Lightstone Value Plus REIT V may have viable arbitration claims before the Financial Industry Regulatory Authority (FINRA) if a stockbroker or investment advisor made an unsuitable recommendation to the investor to purchase them, or made a misleading sales presentation in recommending them.

Publicly registered non-exchange traded REITs like American Finance Trust and Lightstone Value Plus REIT V are complex investment vehicles that carry substantial risk, including significant fees and lack of liquidity (often making redemption difficult for a shareholder seeking to exit an investment). Many retail investors are steered into purchasing non-traded REITs upon the recommendation of their broker or financial advisor who will typically tout the investment’s income component to their clients seeking an income stream. Unfortunately, many investors who purchase shares in non-traded REITs are not fully informed of the many complexities and risks associated with such an investment.

American Finance Trust (“AFT”) is a non-traded REIT that was formed in January 2013 and subsequently launched by American Financial Advisors, LLC. More recently, in February 2017, AFT (with $2.1 billion in assets) and American Realty Capital-Retail Centers of America (with $1.25 billion in assets) announced shareholder approval for a merger of the two non-traded REITs.

Published on: October 4, 2017

KBS REIT I Investors May Have Arbitration Claims

by InvestorLawyers

Non-traded real estate investment trusts (“REITs”), such as KBS REIT I (“KBS I”), unlike exchange traded REITs, are complex and risky investment vehicles that do not trade on a national securities exchange such as the NYSE or NASDAQ. 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.

Apartment Building

KBS I launched through its initial public offering (“IPO”) in early 2006 for issuance of up to 200 million shares. Through its IPO at $10 per share, KBS I raised $1.7 billion prior to closing in May 2008. The company’s portfolio includes nearly 200 properties, in addition to participation in various real estate loan receivables.

Published on: May 23, 2017

Non-Traded REITs – Investors Should Proceed with Caution!

by InvestorLawyers

With increasing frequency, given the current low interest rate environment, retail investors are steered into investing in products appearing to offer more advantageous yields than are available in traditional interest-bearing investments such as money market funds and CDs. One example is the publicly registered non-exchange traded real estate investment trust (“REIT”) or “non-traded REIT.” While non-traded REITS share certain similarities with their exchange-traded brethren, they differ in a number of key respects.

CHARACTERISTICS AND SOME DISADVANTAGES OF NON-TRADED REITS

To begin, a non-traded REIT is not listed for trading on a securities exchange. Consequently, the secondary market for non-traded REITs is typically very limited in nature. Furthermore, while some of an investor’s shares may be eligible for redemption after a certain passage of time (e.g., one year), and, even then, on a limited basis subject to certain restrictions, such redemption offers may well be priced below the purchase price or current price of the non-traded REIT. Thus, lack of liquidity and pricing inefficiency are two disadvantages to non-traded REITs, as opposed to REITs that trade on an exchange (e.g., NYSE: BXP – Boston Properties).

Published on: June 15, 2015

Securities Consultancy Estimates That Non-Traded REITs Cost Investors $50 billion

by InvestorLawyers

Securities Litigation Consulting Group of Fairfax, Virginia has estimated that shareholders of non-traded REITs are about $50 billion worse off for having put money into non-traded REITs rather than exchange-traded REITs. The estimate is based on the difference between the performance of more than 80 non-traded REITs and the performance of a diversified portfolio of publicly-traded REITs over a period of twenty years. According to research by the consultancy, the difference in performance between the two asset groups is largely due to the relatively high up-front expenses associated with non-traded REITs.

Non-traded real estate investment trusts (REITs) are investments that pose a significant risk that the investor will lose some or all of his initial investment. Non-traded REITs are not listed on a national securities exchange, limiting investors’ ability to sell them after the initial purchase. Such illiquid and risky investments are often better suited for sophisticated and institutional investors, rather than retail investors such as retirees who do not wish to have their money tied up for years, or risk losing a significant portion of their investment. Non-traded REITs usually have higher fees for investors than publicly-traded REITs and can be harder to sell.

A partial list of non-traded REITs is as follows (not all of the REITs listed have performed poorly):