Investor Lawyers Blog
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.
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.
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 generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Likely the greatest risk associated with non-traded REITs involves their illiquid nature. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Unfortunately, many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Investors in non-traded REITs can sometimes exit their investment through redemption directly with the sponsor, but such redemptions are limited, both as to timing (often redemptions are only done on a quarterly basis), as well as amount (any redemption will be subject to certain terms, including an overall limit on the aggregate number of shares that the REIT will permit to be redeemed at a given time). Investors may also be able to sell shares through tender offers from time to time (as now with the MacKenzie offer for Inland Residential), or via a limited secondary market.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).