Investor Lawyers Blog
CNL Growth Properties, Inc. (“CNL Growth”) is a publicly registered non-traded real estate investment trust (“REIT”) based in Orlando, FL. Because CNL Growth 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 financial advisor. Unfortunately for many CNL Growth investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.
One of the more readily apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%). These fees act as an immediate ‘drag’ on any investment and can compound losses. Further, another significant and less readily apparent risk associated with non-traded REITs has to do with liquidity. Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange. As a result, 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), sell the shares through a limited and fragmented secondary market, or alternatively, sit and wait for the occurrence of a future “liquidity event” such as listing on a national exchange, a merger, or liquidation.
CNL Growth, formerly known as Global Growth Trust, commenced its $1.5 billion IPO in October 2009. By April 2013, CNL Growth had concluded its offering, priced at $10 per share, after a capital raise of approximately $94.2 million. Shortly thereafter, in August 2013, CNL Growth initiated a follow-on offering and refined its investment strategy to focus on multifamily development projects in the Southeast and Sun Belt regions of the U.S. These combined offerings raised approximately $208 million in investor capital.