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Carter Validus Mission Critical REIT – Secondary Market Pricing Suggests Investors May Have Principal Losses

Wastebasket Filled with Crumpled Dollar BillsInvestors in Carter Validus Mission Critical REIT, Inc. (“Carter Validus”) may have arbitration claims to be pursued before FINRA, in the event the investment recommendation was unsuitable, or if the financial advisor’s recommendation was predicated on a misleading sales presentation.  Headquartered in Tampa, FL, Carter Validus is structured as a Maryland real estate investment trust (“REIT”).  As a publicly registered, non-traded REIT, Carter Validus 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 financial advisor.

In connection with its IPO, Carter Validus offered up to 150,000,000 shares of common stock at $10 per share.  As set forth in its Registration Statement as filed with the SEC, Carter Validus seeks to acquire “income-producing commercial real estate with a focus on medical facilities, data centers and educational facilities.”  As more fully described below, recent secondary market pricing for Carter Validus shares, at a bid-ask spread of between $3.15 – $3.30 per share, suggests investors who opted to sell their shares through a limited secondary market have sustained a principal loss of approximately 67%, excluding distributions.

Non-traded REITs like Carter Validus pose many risks to investors that are often not readily apparent, or in some instances adequately explained by the financial advisors recommending these complex and esoteric investments.  To begin, one significant risk associated with non-traded REITs has to do with their high up-front fees and commissions, which act as an immediate drag on investment performance.  In connection with its IPO, Carter Validus charged investors a “selling commission” of 7%, in additional to a “dealer manager fee” of 2.75%, and certain “organization and offering expenses” of 1.25%.  Thus, in aggregate, investors who participated in the IPO were charged 11% in commissions and fees from the outset.

Moreover, investors in non-traded REITs often come to find out too late that their investment is characteristically illiquid in nature and cannot readily be sold (as opposed to publicly traded REITs which are listed on national securities exchanges and trade at publicly quoted prices).  Often, non-traded REITs are structured in such a way that investors must wait for a prolonged period of time (e.g., 5-7 years) before a potential “liquidity event” will occur and allow the investor to freely sell out of their investment position at a reasonably efficient price.  In the meantime, investors’ options to access liquidity on their investment are rather restricted, including redeeming shares directly with the sponsor (and then, typically at disadvantageous terms, including timing for any redemption, as well as pricing efficiency and transparency), or alternatively, selling shares on a limited and inefficient secondary market.

Financial advisors who sell non-traded REITs and other non-conventional investments are obligated to recommend such investments only when they have a reasonable basis to recommend them to an individual customer.  Further, brokers may not recommend non-traded REITs or other complex investments via a misleading sales presentation that omits to disclose material risks.  A hallmark of non-traded REITs is their high up-front commissions and illiquid nature, risks which many investors may overlook at the time of purchase.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with non-conventional investments, including non-traded REITs.  Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at for a no-cost, confidential consultation.  Attorneys at the firm are admitted in New York and 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).

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