Investor Lawyers Blog
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.
InvenTrust investors who elected to participate in either of these tender offers would have been cashed out of their shares at roughly $1.50 per share, thus sustaining significant losses (net of distributions and commissions) on their initial investment at $10 per share.
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. As highlighted by the recent InvenTrust tender offers, one significant risk associated with non-traded REITs has to do with their illiquid nature. 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, who may have been uninformed of their liquidity issues, have come to learn too late that their ability to exit their investment position is limited. For example, non-traded REIT investors typically can only redeem shares directly with the sponsor on a limited basis, and often at a disadvantageous price. Or, in some cases, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares, often at a disadvantageous price.
In addition to their liquidity issues, many non-traded REITs have high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like InvenTrust 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.
Investors with concerns about a non-traded REIT investment 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.