REIT losses

Published on: February 28, 2018

Everest REIT Investors Launch Tender Offer for Griffin-American Healthcare REIT III Shares – Investors May Have Arbitration Claims

Apartment Building Investors in Griffin-American Healthcare REIT III (“GAH REIT III”), 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 broker or financial advisor. GAH REIT III is sponsored by American Healthcare Investors and Griffin Capital Company, LLC, firms that according to publicly available information have completed transactions totaling approximately $30 billion in commercial real estate investments since 1990, of which approximately $8 billion in transactions have been healthcare-related.

GAH REIT III is a publicly registered non-traded real estate investment trust (“REIT”) incorporated in January 2013 as a Maryland REIT and is registered with the SEC. As such, GAH REIT III was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager.

Recently, third party real estate investment firms Everest REIT Investors I LLC and Everest REIT Investors II LLC launched a $6.5 million tender offer for up to 1 million shares of GAH REIT III, at $6.50 per share. The offer is set to expire on March 20, 2018. Currently, Everest and its affiliates own 19,700 shares of GAH REIT III.

Published on: February 26, 2018

ARC NYC REIT Increases its Defensive Tender Offer – Investors May Have Arbitration Claims

by InvestorLawyers

Building Demolished Investors in American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT 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 or financial advisor. According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.

A publicly registered non-traded real estate investment trust (“REIT”), ARC NYC REIT was incorporated in December 2013 as a Maryland REIT and is registered with the SEC. Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.

In early 2018 — a Tel Aviv, Israel based private real estate investment fund, Comrit Investments 1 LP (“Comrit”) — launched an unsolicited tender offer to purchase up to 1.6 million shares of ARC NYC REIT for $14.68 per share. In response, ARC NYC REIT’s Board countered with a defensive tender offer, to purchase up to 1.9 million shares at a price of $15.50 per share. Both of these tender offers were set to expire on March 6, 2018.

Published on: January 15, 2018

KBS REIT II Investors May Have Arbitration Claims

by InvestorLawyers

Money in Wastebasket Investors in KBS Real Estate Investment Trust II, Inc. (“KBS II” or the “Company”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if the recommendation to purchase KBS II was unsuitable, or if the broker or financial advisor who recommended the investment made a misleading sales presentation. KBS II was formed as a Maryland REIT on July 12, 2007. The Company is based in Newport Beach, CA, and in line with its business model, is “[i]nvested in a diverse portfolio of real estate and real estate-related investments. As of September 30, 2017, the Company owned ten real estate properties (consisting of nine office properties and an office campus consisting of eight office buildings).”

Because KBS II 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 purchased shares through the initial public offering (“IPO”) upon the recommendation of a broker or financial advisor. Pursuant to the Company’s offering, 182,681,633 shares of KBS II common stock were sold through its primary offering, for gross proceeds of $1.8 billion. Further, the Company sold 30,903,504 shares of common stock under its dividend reinvestment plan, for gross proceeds of $298.2 million. According to publicly available information through filings with the SEC, as of September 30, 2017, the Company had redeemed 25,723,025 shares sold under the offering for $244.6 million.

Non-traded REITs, such as KBS II, are complex and risky investment vehicles that do not trade on a national securities exchange. Unfortunately, retail investors are often uninformed by their broker or money manager of the illiquid nature of non-traded REITs, meaning that investors who wish to sell their shares can only do so through a direct redemption with the issuer or through a fragmented and illiquid secondary market.

Published on: January 2, 2018

ARC Healthcare Trust III Approves its Plan of Liquidation

by InvestorLawyers

Building Demolished As we discussed in a recent blog post, investors in American Realty Capital Healthcare Trust III Inc. (“ARC HT III”) may be able to recover losses on their investment in FINRA arbitration. Sponsored by AR Global, ARC HT III is a publicly registered non-traded real estate investment trust (“REIT”) based in New York, NY. As its name implies, this non-traded REIT is primarily focused on investing in healthcare-related assets including medical office buildings, seniors housing and other healthcare-related facilities.

ARC HT III raised approximately $168 million in investor equity prior to cancellation of its offering, due in large part to a series of scandals concerning AR Global. As recently as July 2017, ARC HT III announced an estimated net asset value (“NAV”) per share of $17.64. Investors who participated in the offering bought in at $25 per share. Additionally, on July 18, 2017, the ARC HT III Board determined that it would cease paying distributions beginning in August 2017.

One of the risks associated with investing in non-traded REITs concerns the viability of the distribution payment. At its discretion, the board of a non-traded REIT may well decide to substantially reduce, or altogether suspend, payments of distributions to investors. This is troubling, particularly because many investors are advised to purchase non-traded REITs as a means of earning enhanced income. Another risk associated with investing in non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition, non-traded REITs like ARC HT III generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. These fees act as an immediate ‘drag’ on any investment and can serve to compound losses.

Published on: December 26, 2017

Investors in American Finance Trust May Have Arbitration Claims

by InvestorLawyers

Apartment Building American Finance Trust (“AFIN”), formerly known as American Realty Capital Trust V, Inc., is a publicly registered non-traded real estate investment trust (“REIT”) that is based in New York, NY. Incorporated on January 22, 2013 as a Maryland REIT, AFIN is a diversified REIT with a focus on retail properties. As of September 30, 2017, AFIN owned a total of 517 properties. Because AFIN 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 money manager.

AFIN commenced its initial public offering in April 2013, which closed approximately six months later, raising $1.6 billion in investor equity. Investors who participated in the IPO paid $25 per share. In February 2017, AFIN completed a merger with another affiliated non-traded REIT: American Realty Capital – Retail Centers of America.

Non-traded REITs pose many risks that may not be readily apparent to 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 like AFIN generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.

Published on: December 15, 2017

Investors in CNL Lifestyle Properties, Inc. May Have Arbitration Claims

by InvestorLawyers

Apartment Building CNL Lifestyle Properties, Inc. (“CNL Lifestyle”) is a publicly registered non-traded real estate investment trust (“REIT”) that is based in Orlando, FL. Because CNL Lifestyle 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 money manager.

Non-traded REITs pose many risks that may not be immediately apparent to investors (or adequately explained by financial advisors and stockbrokers who sell them). To begin, one of the more readily apparent risks associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition, non-traded REITs like CNL Lifestyle generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. These fees act as an immediate ‘drag’ on any investment and can serve to compound losses.

Another significant risk associated with non-traded REITs has to do with their liquidity. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, 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), or alternatively, sell the shares through a limited and fragmented secondary market. Finally, most non-traded REITs are structured to experience a future ‘liquidity event’ – which might entail listing the shares on an exchange or liquidating the entire portfolio – although such an event will typically only occur after a number of years (e.g., 5-7 years).

Published on: June 15, 2015

Securities Consultancy Estimates That Non-Traded REITs Cost Investors $50 billion

by InvestorLawyers

Securities Litigation Consulting Group of Fairfax, Virginia has estimated that shareholders of non-traded REITs are about $50 billion worse off for having put money into non-traded REITs rather than exchange-traded REITs. The estimate is based on the difference between the performance of more than 80 non-traded REITs and the performance of a diversified portfolio of publicly-traded REITs over a period of twenty years. According to research by the consultancy, the difference in performance between the two asset groups is largely due to the relatively high up-front expenses associated with non-traded REITs.

Non-traded real estate investment trusts (REITs) are investments that pose a significant risk that the investor will lose some or all of his initial investment. Non-traded REITs are not listed on a national securities exchange, limiting investors’ ability to sell them after the initial purchase. Such illiquid and risky investments are often better suited for sophisticated and institutional investors, rather than retail investors such as retirees who do not wish to have their money tied up for years, or risk losing a significant portion of their investment. Non-traded REITs usually have higher fees for investors than publicly-traded REITs and can be harder to sell.

A partial list of non-traded REITs is as follows (not all of the REITs listed have performed poorly):

Published on: January 22, 2013

CommonWealth REIT Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses in CommonWealth REIT. Allegedly, between January 10, 2012, and August 8, 2012, CommonWealth issued false and misleading statements regarding its financial standing and prospects which, if proved to be true, would be a violation of the Securities Exchange Act of 1934.

CommonWealth REIT Investors Could Recover Losses

The CommonWealth real estate investment trust primarily owns and operates real estate, such as industrial buildings, office buildings and leased industrial land. Allegations currently being investigated by securities arbitration lawyers are that CommonWealth failed to disclose certain facts, including the fact that leased office spaces had fallen below expectations, existing tenants were receiving concessions which were eroding CommonWealth’s income and, as a result, CommonWealth’s positive statements about its occupancy rate, dividend payout and leverage ratio were not reasonably founded.

An announcement on August 8, 2012, stated that CommonWealth would likely be reducing its dividend payment. Among the reasons cited for this reduction were that its available cash for distribution payout ratio had increased and its occupancy rate had decreased. Following this announcement, the per share price of CommonWealth fell $1.57, or 9 percent, closing at $16.48 that day. Investment fraud lawyers say that by October 26, 2012, shares were trading at $13.58, a 52-week low. Furthermore, while CommonWealth REIT’s annual revenue increased from 2008 to 2011, its net income fell in that same period from $244.65 million to $109.98 million, a decline of $134.67 million.

Published on: November 30, 2012

More Arbitration Claims Against Brokers, Firms in Inland Western REIT and KBS REIT I

by InvestorLawyers

Stock fraud lawyers are currently investigating claims on behalf of investors who suffered significant REIT losses as a result of unsuitable recommendations of non-traded REITs. Recently, new arbitration claims have been filed on behalf of investors in Inland Western REIT, KBS REIT I and other risky investments.

More Arbitration Claims Against Brokers, Firms in Inland Western REIT and KBS REIT I

In one recent claim, securities arbitration lawyers say the claimants opened accounts with Multi-Financial and, despite the fact that the claimants indicated to the adviser they wanted to generate principal while protecting their income, the adviser proceeded to recommend a substantial investment in speculative and illiquid Real Estate Investment Trusts, or REITs and Limited Partnerships, or LPs. Based on the Multi-Financial adviser’s recommendation, the Claimants invested in Inland Western REIT, Wells REIT II, PDC 2005-B Oil & Gas, Reef Global Energy VII Oil & Gas, Cronos Containers Partners I, Hines REIT, Reef Global Energy VI Oil & Gas, Crowne Hattiesburg Bluffton Holdings, Mewbourne 2008-A, Oil & Gas, LEAF Commercial Finance Fund LLC, Atlas Resources 2008, Oil & Gas and Behringer Harvard Strategic Opportunity Fund II REIT.

Another recent filing was against one of the brokerage firms responsible for the supervision and actions of Paul Larsen, a former broker with VSR, ProEquities and six other firms before being permanently barred by FINRA in 2011. According to the allegations, Larsen made unsuitable recommendations of non-traded REITs, coal and natural gas speculation and other risky investments. A claim filed on November 21, 2012 alleges Larsen made improper recommendations of KBS REIT I, Atlas 14 and Atlas 15. Atlas 14 and 15 are both speculative natural gas and oil drilling ventures. For more information on KBS REIT I, see the pervious blog post, “KBS REIT I Investors Could Recover Losses.” Stock fraud lawyers say the brokerage firms could be held liable for REIT losses suffered by Larsen’s clients because they have a responsibility to adequately supervise their brokers.

Published on: November 15, 2012

Recovery of Whitestone REIT Losses

by InvestorLawyers

Investors of Whitestone REIT are attempting to recover their REIT losses through Financial Industry Regulatory Authority securities arbitration. First offered in 2004 as a public, non-traded REIT under the name Hartman Commercial Properties REIT, shares of the investment were offered at a per share price valuation of $10. Until a statement in 2009, which informed investors that the value of Whitestone REIT had declined to a per share price of only $5.15, investors were unaware of any problems with the REIT.

Recovery of Whitestone REIT Losses

On May 1, 2009, Jack L. Mahaffey, Independent Trustee, Chairman of Compensation Committee and Chairman of Special Committee for Whitestone REIT, issued a letter to shareholders. This statement revealed the $5.15 valuation was considered by Western Reserve Partners, a real estate investment banking firm which was engaged to review Whitestone’s internal management analysis, to be “on the high side of the range of reasonableness for current valuation.”

The letter to shareholders also addressed the question of why investors’ dividends had been reduced despite the fact that they were led to expect a dividend of 7 percent. In addressing this question, Mahaffey stated that “Whitestone had established a pattern of making cash distributions in excess of its FFO and available cash flow, a practice generally avoided by listed REITs.”