Investor Lawyers Blog
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.
As of August 24, 2016, CNL Growth’s board of directors elected to make a special cash distribution to investors in the amount of $2.35 per share, as part of CNL Growth’s plan of liquidation. Under the liquidation plan, CNL Growth elected to essentially wind up its operations through the sale of portfolio assets and distribution of cash proceeds to investors. Such a process is often time-consuming, cumbersome and expensive, and usually involves hiring an investment bank as financial adviser to assist in the formation and execution of such a liquidation plan. Further, such a liquidation plan requires shareholder approval and may take many months (or even years) to finalize from start to finish.
According to publicly available SEC filings, it was recently reported that CNL Growth sold Haywood Reserve, a 292-unit multifamily community in Greenville, South Carolina for $53.8 million to an unaffiliated third-party. With this sale, CNL Growth has completed the sale of its last property held by the non-traded REIT as part of its plan of liquidation. It has been reported that the net cash to CNL Growth in connection with the sale is approximately $20.5 million after repayment of certain debt, closing costs, etc. In addition, Central Trade and Transfer (a secondary market platform for so-called ‘alternative investments’ including non-traded REITs) recently listed shares of CNL Growth with a bid-ask spread of $4.10 – $4.25. This price would suggest that investors in CNL Growth have suffered significant losses on their illiquid investment (even factoring in cash distributions from liquidation of portfolio properties).
If you have invested in CNL Growth, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, 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.