Earlier this month, a tender offer to purchase shares of Carey Watermark Investors Inc. (“Carey Watermark”), a publicly registered non-traded real estate investment trust managed by W.P. Carey Inc. (NYSE: WPC), was reportedly completed by a private investor known as Everest REIT Investors I LLC (“Everest”).
According to public SEC filings, the unsolicited offer to purchase up to 7.02 million shares of common stock, or roughly 5 percent of the outstanding shares of Carey Watermark, resulted in Everest’s purchase of 48,831 shares for $7.50 each in its tender offer that expired on March 29, 2019.
Carey Watermark shares originally sold for $10.00 each and have an estimated net asset value (NAV) of $10.41 as of December 31, 2017.
Generally speaking, a REIT’s estimated NAV per share may not always equate to market value. For example, one non-traded REIT known as American Finance Trust, Inc. (or AFIN) that was listed on the public Nasdaq stock exchange in 2018 has traded at prices far below its estimated NAV prior to listing. AFIN has traded at prices as low as $10.08 a share, although it publicized a NAV of $23.56 a share prior to its listing.
Non-traded REITs pose many risks that are often not readily apparent to retail investors, and may not be adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs concerns their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Likely the greatest risk associated with non-traded REITs involves their illiquid nature. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange and cannot readily be sold. Unfortunately, many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Investors in non-traded REITs can sometimes exit their investment through redemption directly with the sponsor, but such redemptions are limited, both as to timing (often redemptions are only done on a quarterly basis), as well as amount (any redemption will most likely be subject to certain terms, including an overall limit on the aggregate number of shares that the REIT will permit to be redeemed at a given time). Investors may also be able to sell shares through tender offers from time to time (as happened recently with the Everest offer for Carey Watermark), or via a limited secondary market.
Investors who have suffered losses in connection with a non-traded real estate investment trust (REIT) or other non-traded investment may have arbitration claims if the REIT was recommended by a stockbroker or investment advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by a stockbroker or financial advisor
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, New Jersey, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).