Investor Lawyers Blog
CNL Lifestyle Properties, Inc. (“CNL Lifestyle”) is a publicly registered non-traded real estate investment trust (“REIT”) that is based in Orlando, FL. Because CNL Lifestyle 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.
Non-traded REITs pose many risks that may not be immediately apparent to investors (or adequately explained by financial advisors and stockbrokers who sell them). To begin, one of the more readily apparent risks associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition, non-traded REITs like CNL Lifestyle 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.
Another significant risk associated with non-traded REITs has to do with their liquidity. 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 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), or alternatively, sell the shares through a limited and fragmented secondary market. Finally, most non-traded REITs are structured to experience a future ‘liquidity event’ – which might entail listing the shares on an exchange or liquidating the entire portfolio – although such an event will typically only occur after a number of years (e.g., 5-7 years).
On March 24, 2017, at a special stockholders meeting, shareholders in CNL Lifestyle approved a plan of liquidation in order to dissolve the company. Thereafter, on April 6, 2017, the non-traded REIT consummated the sale of the company to EPR Properties, a Maryland REIT, and Ski Resort Holdings LLC, a Delaware entity, resulting in cash proceeds to CNL Lifestyle of approximately $153.2 million. As part of the dissolution of the company, shareholders will receive a final cash distribution of approximately $53 million, equating to roughly $0.16 per share to stockholders of record as of December 8, 2017.
CNL Lifestyle shares were originally sold through its offering at a price of $10.00 per share. The non-traded REIT paid an initial special distribution of $1.30 in December 2015, followed by another $0.50 distribution in November 2016. Under the plan of liquidation approved in March 2017, shareholders received an interim liquidating distribution of $2.17 per share; in addition, as referenced above, shareholders are set to receive a final liquidating distribution of approx. $0.16 per share on or about December 15, 2017.
Even when accounting for its special distributions and liquidating distributions, it appears that shareholders in CNL Lifestyle may suffer considerable losses on their initial capital investment. Brokers, and by extension their firm, are required to perform adequate due diligence on any investment that they recommend. Further, brokers are required to conduct a suitability analysis in order to determine if the recommended investment is in keeping with the investor’s stated objectives and risk profile.
If you have invested in CNL Lifestyle, 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. Investors 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.