CNL Lifestyle Properties REIT Tag Archives

According to stock fraud lawyers, the Financial Industry Regulatory Authority has and will continue to relentlessly target non-traded real estate investment trusts, or REITs. Specifically, the regulatory authority is focusing on how broker-dealers sell these investments and potential shortcomings in their strategies. According to the Executive Vice President of Member Regulation Sales Practices at FINRA, Susan Axelrod, examiners at FINRA have been scrutinizing “numerous retail sellers of non-traded REITs.” Axelrod also stated that, “In several instances, FINRA examiners have found that firms selling these products failed to conduct reasonable diligence before selling a product and failed to make a determination that the product was suitable for investors.”

FINRA Targets Non-traded REITs

Investment fraud lawyers note that independent broker-dealers have a responsibility to perform adequate due diligence when selling any investment, especially complex, illiquid products. Since the 2008 market collapse, FINRA has been aggressive with broker-dealers who failed to do so. Axelrod stated to the Securities Industry and Financial Markets Association’s Complex Products Forum that, “FINRA examiners have noted that in the instances of REITs that have experienced financial difficulties, red flags existed and should have been considered by firms prior to the product being offered to firm clients.”

Another problem with non-traded REITs, according to Axelrod, is that “non-traded REITs may also borrow funds to make distributions if operating cash flow is insufficient, and excessive borrowing may increase the risk of default or devaluation. In addition, non-traded-REIT distributions may actually be a return on principal.”

Stock fraud lawyers are currently investigating claims on behalf of investors who have suffered significant losses as a result of their investment in CNL Lifestyle Properties Inc. Reportedly, a recent announcement from CNL Lifestyle Properties stated that its per share value estimate has dropped from its original share price of $10 to $7.31. This decline represents a drop of 27 percent, which could mean significant losses for many investors. Furthermore, the REIT is reportedly cutting investor dividends, or distribution.

CNL Lifestyle Properties REIT Investors Could Recover Losses

Financial Industry Regulatory Authority rules have established that brokers and firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance.

The CNL Lifestyle Properties REIT is, according to investment fraud lawyers, another in a long line of non-traded REITs currently under investigation. REITs typically carry a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as the CNL Lifestyle Properties REIT, carry a relatively high dividend or high interest, making them attractive to investors. However, these investments are inherently risky and illiquid, which limits access of funds to investors. This becomes a major problem for investors, especially retired individuals, who may need to access their funds when the need arises. For more information on REITs, see the previous blog post “FINRA Investor Alert: Public Non-Traded REITs.”