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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.

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Investors in FS Energy and Power Fund (“FSEP”) an 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 In Wind
FSEP was formed as a Delaware Statutory Trust in September 2010, and subsequently commenced its investment operations on July 18, 2011.  Structured as a regulated investment company, or RIC, for federal tax purposes, FSEP qualifies as a business development company (“BDC”) under the Investment Company Act of 1940.

BDCs are in the business of providing various debt and mezzanine financing solutions for typically small and medium-sized businesses that cannot access credit in the same way as larger, more established companies.  By providing credit solutions to less established companies, BDCs will frequently collect much higher than average interest income and seek to pass along such income to investors in the form of dividends.

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Investors in Carter Validus Mission Critical REIT II Inc. (“CVMC REIT II”) 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
The Board of  CVMC II REIT, a publicly registered non-traded real estate investment trust, approved an estimated net asset value of $8.65 per share for the REIT’s Class A, Class I, Class T, and Class T2 shares of common stock, calculated as of October 31, 2019.  The previous NAV per share was $9.25 as of June 30, 2018 and shares originally sold for $10.00 each.  Carter Validus Mission Critical REIT II recently merged with an affiliated non-traded REIT, Carter Validus Mission Critical REIT. The company noted that while the value of its pre- and post-merger real estate portfolio increased, the NAV was negatively impacted by transaction costs incurred from Carter Validus Mission Critical REIT’s merger-related costs, among other things.

CVMC REIT II was incorporated on January 11, 2013 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, CVMC REIT II 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.  CVMC REIT II began offering securities in May 2014, and after raising $1.2 billion in investor equity in its initial primary offering, CVMC REIT II launched a follow-on offering that terminated in November 2018 after raising an additional $86.9 million.  CVMC REIT II invests in net leased data centers and healthcare assets and owned a portfolio of 85 pr Carter Validus Mission Critical REIT II, which invests in net leased data center and healthcare assets, went effective in May 2014 and has raised $1 billion in investor equity, as of July 18th. The REIT’s portfolio is comprised of 62 properties (20 data center and 42 healthcare properties) that were purchased for approximately $1.4 billion.

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A UBS Financial Services options trading program marketed as a “Yield Enhancement” strategy to brokerage customers of UBS, reportedly including risk averse investors with substantial bond portfolios, suffered substantial losses approaching 20% of the capital committed in 2018 and early 2019, although customers to whom the strategy was sold had reportedly been under the impression that the maximum loss they faced in a given month was  1-2%.

money blowing in wind
UBS financial advisor Jose Cornide (CRD# 2785918) of the Edinroc Financial Group in Coral Gables, Florida reportedly faces seven customer disputes, according to his publicly available FINRA BrokerCheck report, including some customer disputes regarding the UBS Yield Enhancement Strategy (YES).  Cornide has reportedly been employed by UBS Financial Services since 2005, and works out of the firm’s Coral Gables, Florida office. Before that, Cornide reportedly worked for Goldman Sachs from 1996-2004.

Our firm currently represent other investors in claims against UBS for the sale of the Yield Enhancement Strategy, which was reportedly marketed to high net worth investors around the country as producing steady returns, with modest or minimal risk of substantial losses.  This impression of minimal risk was borne out by UBS’s marketing materials for YES, which at least strongly suggested that the central trading strategy of YES- the Iron Condor- exposed the client to finite or limited risk.  For example, one UBS marketing presentation touted historic returns that featured very few months with losses, and many months with gains.  UBS marketing materials also characterized YES’s central strategy as follows: “selling short term out-of-the-money European style puts and calls on the S&P 500 Index.  To help mitigate downside and upside market exposure, short term below-market and above-market call options are purchased with the same duration as the puts and calls sold.”