As recently reported, third-party real estate investment firm MacKenzie Realty Capital (“MacKenzie”) launched an unsolicited tender offer to purchase up to 1 million shares of Carter Validus Mission Critical REIT, Inc. (“Carter Validus”) shares for $3.36 per share. The tender offer is set to expire on June 25, 2018. While the Carter Validus Board has recommended that shareholders reject the offer, the non-traded REIT’s share repurchase program is already fully subscribed for 2018. Further compounding the problem, Carter Validus recently reported that its largest tenant by revenue — Bay Area Regional Medical Center, LLC in Webster, TX — has declared bankruptcy. Currently, investors seeking immediate liquidity on their Carter Validus investment have limited options at their disposal.
Headquartered in Tampa, Florida, Carter Validus is a publicly registered, non-traded REIT that is focused on investing in net leased data centers and healthcare properties. As recently reported, Carter Validus’ portfolio consists of 66 properties, including 3 data centers and 63 healthcare properties. The REIT’s offering, declared effective by the SEC in December 2010, closed in June 2014 after raising approximately $1.7 billion in investor equity.
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. Many ordinary investors may be unaware of the high up-front commissions (typically between 7-10% of the initial investment) associated with non-traded REITs like Carter Validus. Further, some investors may have been improperly steered into Carter Validus, without first being fully informed of the investment’s complex nature and inherent risks.
The greatest risk associated with investing in non-traded REITs like Carter Validus has to do with their illiquidity, a risk that is not readily apparent to many average retail investors. Financial advisors who recommend such complex investments have an affirmative duty to fully disclose and explain the illiquid nature of non-traded REITs. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, investors in non-traded REITs like Carter Validus have limited options for sale of shares such as redeeming shares directly with the sponsor on a limited basis or sale via a tender offer at what may be a disadvantageous price. However, as noted above, the Carter Validus share repurchase program for 2018 is already fully subscribed., and sales via the tender offer at $3.36 a share would leave Carter Validus investors with substantial principal losses.
Investors who elect to participate in the MacKenzie tender offer will be cashed out of their Carter Validus investment position at $3.36 per share, sustaining considerable losses on their investment (even when factoring in distributions received to date).
Investors who wish to discuss their legal rights may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at email@example.com for a no-cost, confidential consultation.