Investor Lawyers Blog
Investors in Sila Realty Trust Inc. (formerly known as Carter Validus Mission Critical REIT II and referred to below as referred to below as “Sila REIT ”) may have FINRA arbitration claims, if 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 stockbroker or advisor.
Sila REIT, a non-traded, publicly registered REIT, invests in data centers and healthcare facilities, according to its website. The company changed its name from Carter Validus Mission Critical REIT II to Sila on September 30, 2020.
In June, 2023, Sila announced that GenesisCare USA Inc., one of the REIT’s tenants, filed for Chapter 11 bankruptcy protection. GenesisCare’s lease obligations with Sila have reportedly not been included in any motions GenesisCare has filed, and Sila reports that GenesisCare has met its lease payment obligations due to the company through May 2023.
On March 6, 2023, Sila REIT’s board recommended in a Letter to Stockholders that they reject an unsolicited tender offer by a private equity fund that had offered to purchase up to 500,000 Class A shares for $4.16 each, close to 50 percent less than the REIT’s then most recent net asset value (NAV) per share of $8.22. Secondary market bid and offer information suggests shares of Sila Realty Trust have recently been sold for around $5.20 per share. Shares were originally offered for $10 per share, meaning investors may have lost a substantial portion of their principal.
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. One significant risk associated with non-traded REITs has to do with 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%.
Furthermore, non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor on a limited basis, and often at a disadvantageous price, or through sales in a limited secondary market. As in this case, third party tender offers may also offer liquidity, but at a price that may or may not reflect the shares’ fair value.
Stockbrokers and financial advisors who sell non-traded REITs and other non-conventional investments have an obligation to recommend these investments only when they have a reasonable basis to recommend them to an individual customer. Advisors also may not sell non-traded REITs or other investments via a misleading sales presentation that omits to disclose material risks.
Investors with questions about claims against a stockbroker or investment advisor concerning Sila REIT or other non-traded REITs or non-conventional investments may contact 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. 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).