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FS Energy and Power Fund (“FSEP” or the “Company”)  has terminated the company’s quarterly tender offer and suspended the share repurchase program, citing difficult market conditions and events relating to crude oil production.  The decision leaves shareholders who may wish to sell their shares with limited options for liquidity..

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FSEP suspended regular cash distributions to shareholders after March 31, 2020.  As a result of this tender offer termination, no shares will be purchased and all shares previously tendered will be returned to shareholders. The board also decided to suspend the share repurchase program for an indefinite period of time and will reassess the company’s ability to recommence the program in the future.

FSEP launched in July 2011 to invest primarily in privately-held U.S. companies in the energy and power industry and closed its public offering in November 2016.  Upon information and belief, as a publicly registered, non-traded BDC, FSEP was marketed and recommended to numerous retail investors nationwide

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Investors in Energy 11, L.P. (“Energy 11”) may be able to recover investment losses through FINRA arbitration. 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.

Oil Drilling Rigs
On March 19, 2020, Energy 11 announced that it would suspend distributions to limited partners until further notice, citing “recent volatility in the market and oil prices in particular” that “has caused uncertainty to our cash flow for the remainder of 2020.”  Energy 11’s letter announcing the suspension is accessible here. ex_178082

Energy 11 has published an estimated per common unit value of its common units of $13.82 as of December 31, 2019.  However, this value may be premised in part on oil prices of over $50 a barrel that prevailed in 2019.  Oil prices have since plummeted to less than $30 a barrel as of this writing in March 2020.

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Investors in Hospitality Investors Trust (“HIT”), also known as American Realty Capital Hospitality Trust or ARC Hospitality, 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.

Money Maze
HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, announced a 33.6% decrease in its net asset value (“NAV”) to $9.21 per share, following a share repurchase program in October, 2018 in which shares were purchased at $9.00 per share.

As a publicly registered non-traded REIT, HIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  Original investors of HIT could purchase shares at $25.00 per share.  However, the REIT’s estimated NAV is currently $9.21, and even worse, shares on the secondary market have reportedly been sold at prices between $3.75 and $3.99 a share.

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Investors in Lightstone Value Plus REIT V (“Lightstone V”) 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.

Money Maze
Lightstone V (originally named Behringer Harvard Opportunity REIT II until July 2017) was formed as a non-traded real estate investment trust in January 2008, also known as a REIT, to invest in retail and other types of commercial properties. Investors who purchased shares in Lightstone V at the initial offering acquired shares at $10 per share, but currently has a net asset value (“NAV”) of $9.10 per share. Even worse, shares on the limited secondary market have reportedly traded at prices as low as between $5.95 and $6.25 per share.

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 like Lightstone V generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

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Investors in Healthcare Trust, Inc. (“HTI”), 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.  HTI was incorporated on October 15, 2012, as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  HTI invests in multi-tenant medical office buildings and, as of year-end 2017, owned a portfolio consisting of 8.4 million-square-feet including 164 properties, with a total purchase price of $2.3 billion.

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As a publicly registered non-traded REIT, HTI was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the offering upon the recommendation of a broker or money manager.  HTI terminated its offering in November 2014 after raising approximately $2.2 billion in investor equity.

Recently, third party real estate investment firm MacKenzie Capital Management(“MacKenzie”) initiated an unsolicited mini-tender offer to purchase up to 200,000 shares of HTI for $7.99 per share.  In response, HTI launched its own tender offer to purchase up to 200,000 shares for $8.50 a share, “in order to deter MacKenzie and other potential future bidders that may try to exploit the illiquidity of the shares and acquire them from the company’s stockholders at prices substantially below their estimated [net asset value per share].”

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Investors in Cole Credit Property Trust IV Inc. (“Cole IV”, now known as CIM Real Estate Finance Trust) 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.

money whirlpool
Cole IV was formed as a non-traded real estate investment trust, also known as a REIT, that invests in income-producing single-tenant retail properties with long-term net leases with credit-worthy tenants.  Investors who purchased shares in Cole IV at the initial offering acquired shares at $10 per share, but currently has a reported estimated net asset value (“NAV”) of $8.65 per share.  Even worse, shares on the secondary market are valued between $6.35 and $6.55 per share.

Although investors may be disappointed at the low $8.65 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if Cole IV were liquidated, listed on an exchange or merged with a public company.  Financial analysts frequently assume that non-traded investments such as Cole IV will trade at a discount to NAV if listed on a securities exchange.  In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market.  AFIN shares now trade at less than $13 a share as of January 2020.

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Investors in FS Global Credit Opportunities Fund A (“FS Global”) 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.

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FS Global was formed as an unlisted, closed-end business development company (“BDC”) under the Investment Company Act of 1940 that invests in loans, bonds, and other instruments.

Investors who wish to sell out of their investment in FS Global are limited in their options due to the its illiquidity.  Investors who purchased shares in FS Global at the initial offering acquired shares at $10 per share, but currently has a reported estimated net asset value (“NAV”) of $7.36 per share.  Even worse, shares have reportedly been sold in the limited secondary market at prices of between $5.36 and $5.18 per share.

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Investors in Business Development Corporation of America (“BDCA”) 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.

Money Maze
BDCA is a non-traded business development company, also known as a BDC, that provides flexible financing solutions to various middle market companies, including first and second lien secured loans and debt issued by mid-sized companies.  BDCA commenced its initial public offering in January 2011 and raised $1.9 billion after being offered at $11.15 per share. Currently, BDCA has a reported estimated net asset value (“NAV”) of $7.75 per share.  Even worse, shares on the secondary market are reportedly valued between $6.05 and $5.75 per share.

Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market).  In addition, non-traded BDCs such as BDCA have high up-front fees (typically as high as 10%), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.

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Investors in non-traded REITs Steadfast Apartment REIT, Steadfast Apartment REIT III and Steadfast Income 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.

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According to public filings with the Securities and Exchange Commission (SEC), on December 19, 2019, Steadfast Apartment REIT III, Inc. (STAR III) and Steadfast Income REIT (SIR) filed their respective definitive proxies seeking shareholder approval of the proposed mergers with Steadfast Apartment REIT, Inc. (STAR).

These transactions were previously announced by Steadfast in August 2019, but the December 2019 SEC filings provide additional information as the REITs prepare for a shareholder vote.  If approved, these transactions would result in a consolidation of STAR III and SIR into non-traded REIT, Steadfast Apartment REIT.  Under the terms of the mergers, STAR III shareholders would reportedly receive 1.43 shares of STAR common stock as consideration, and SIR shareholders would receive 0.5934 shares of STAR common stock as consideration, on a NAV-for-NAV basis.

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Investors in Benefit Street Partners Realty Trust, Inc. (“Benefit Street”) 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.

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Falling American Currency

Benefit Street, formerly known as Realty Finance Trust, changed its name around September 2016 when they appointed Benefit Street Partners as its new advisor. Benefit Street was founded in 2012 as a non-traded real estate investment trust, also known as a REIT.  Investors who purchased shares in Benefit Street through the offering acquired shares at $25 per share, but currently has an estimated net asset value (“NAV”) of $18.75 per share.  Even worse, shares on the secondary market are valued between $14.25 and $14.00 per share.