Investor Lawyers Blog
Investors who purchased shares in the publicly registered non-traded REIT Hospitality Investors Trust, Inc. (“HIT”) upon the recommendation of their financial advisor may be able to recover their losses in FINRA arbitration. HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets. As of December 31, 2016, HIT owned 148 hotels; the company was founded in 2013 and is headquartered in New York, NY.
Recently, HIT commenced a defensive tender offer for up to 1 million shares of its common stock at a price of $6.50 per share. According to HIT’s board, the defensive tender was made in order to deter another recent tender offer, made by third-party MacKenzie Realty Capital (“MacKenzie”), a non-traded business development company. On October 23, 2017, MacKenzie notified HIT investors that it had commenced an unsolicited tender offer to purchase up to 300,000 shares of common stock for $5.53 per share. The MacKenzie tender offer is set to expire on December 8, 2017, whereas the more recent HIT tender offer is set to expire on December 11, 2017.
These recent tender offers by both MacKenzie and HIT illustrate one of the significant risks associated with investing in non-traded REITs. Specifically, an investment in a non-traded financial product is generally an illiquid investment that can only be sold through redemption to the sponsor, or in some instances, through a limited and fragmented secondary market. In this instance, the defensive offer to redeem being made by HIT is at $6.50 per share. For investors who purchased shares through the original offering, the shares were priced at $25. Therefore, even when factoring in any distributions paid on the investment, any shareholder who participates in the HIT tender offer will be absorbing a steep loss on their investment of approximately 70%.
On the secondary market, shares of HIT were reportedly listed for sale through Central Trade & Transfer, at a price of approximately $11 per share. Unfortunately for many investors in HIT, it would appear that any attempt to exit their illiquid investment will incur a substantial loss. Aside from their illiquid nature, non-traded REITs also present significant additional risks. One of these risks has to do with their high cost. In most instances, non-traded REITs are sold through a network of independent broker-dealers and associated financial advisors, who earn steep commissions (ranging up to 10%) on sales of non-traded REITs to investors. In addition to the sales commission charged, non-traded REITs typically charge other expenses, including certain due diligence and administrative fees (that can range anywhere from 1-3%).
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with non-traded REITs, including recovering losses through FINRA arbitration, as well as litigation. Investors may contact our office at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.