Investor Lawyers Blog
Investors in Strategic Storage Growth Trust, Inc. (“Strategic Storage” or the “Company”) 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. As recently reported, Strategic Storage’s board of directors has elected to suspend its distribution reinvestment plan, as well as its share redemption program, as it seeks to shore up its finances and explore potential liquidity options. Given the fact that one of the Company’s stated primary investment objectives is to “grow net cash flow from operations in order to provide sustainable cash distributions… over the long-term” many retail investors who invested because of the Company’s income component are now faced with the prospect of holding an illiquid, non-traded investment that no longer provides valuable monthly income.
According to publicly available documents filed with the SEC, Strategic Storage was formed on March 12, 2013 as a Maryland corporation for the “[p]urpose of engaging in the business of investing in self storage facilities and related self storage real estate investments.” The Company’s portfolio currently consists of 26 operating self storage facilities, in addition to two properties in development. Strategic Storage launched its offering in January 2015, in the process raising approximately $193 million through issuance of Class A shares and approximately $79 million through issuance of Class T shares.
Strategic Storage is structured as an operating business, but qualifies as a REIT for federal income tax purposes. For many investors, their primary motivation to invest in a REIT is to capture an enhanced income stream from the tax-advantaged REIT structure. Importantly, however, Strategic Storage is a non-traded REIT, meaning that the investment is illiquid in nature and not easily sold (typically, many non-traded REIT’s offer a share redemption program, but these programs are often limited both as to when an investor may redeem and the amount of shares available for actual redemption).
With regard to income or distributions, many non-traded REITs pose significant risks, including their initial structure as a blind pool, as well as the nature of the income paid to investors. Many non-traded REITs are blind pools, meaning that an investor considering a capital commitment will have either no information (or very limited information) as to the nature and quality of the assets to be purchased by the REIT. Further, with respect to the nature of income paid by non-traded REITs, quite often distributions are paid to investors via “return of capital,” meaning that investors are essentially being paid back with their own initial contribution. This is extremely problematic, and unsurprisingly, many non-traded REITs — including Strategic Storage — have elected to suspend their distributions, and in certain instances their share redemption programs, leaving retail investors mired in an illiquid investment that no longer pays valuable income.
Strategic Storage investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.