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.
According to publicly available SEC filings, on December 21, 2017, ARC HT III shareholders voted their approval at the annual meeting to liquidate and dissolve the non-traded REIT. As part of this plan of liquidation, shareholders also approved the sale of substantially all of its assets to an affiliated non-traded REIT, Healthcare Trust Inc., for $120 million. In connection with ARC HT III’s plan of liquidation, the board approved an initial liquidating distribution to shareholders of $15.75 a share of common stock, to be paid on January 5, 2018, to stockholders of record as of December 22, 2017. ARC HT III estimates that shareholders will receive approximately $17.67 – $17.81 a share of common stock.
Given the initial purchase price of $25, ARC HT III shareholders who receive $17.81 will take a nearly 30% haircut on their investment. Even when factoring in distributions previously paid to shareholders, it would appear that ARC HT III shareholders will incur losses on their investment.
If you have invested in ARC HT III, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. Investors may contact contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation.