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Articles Posted in FINRA Arbitration

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Investors in Terra Income Fund 6 (“Terra 6”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if a broker or financial advisor made the recommendation to invest in Terra 6 without a reasonable basis, or misled the investor as to the nature of the investment.  Terra 6 is a non-traded business development company headquartered in Kansas City, Missouri.  Formed on May 15, 2013 and commencing operations on June 24, 2015, Terra 6 is a non-traded business development company (“BDC”).

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As an investment vehicle, BDCs first emerged in the early 1980’s following legislation passed by Congress making certain amendments to federal securities laws.  These legislative changes allowed for BDC’s — types of closed end funds — to make investments in developing companies and firms.  Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to earn enhanced dividend income while participating in private-equity-type investing previously unavailable to the average “Mom and Pop” investor.

While non-traded BDCs may offer an attractive investment opportunity for certain investors, non-traded BDCs, such as Terra 6, are complex and risky investment products.  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).  Further, non-traded BDCs often entail high up-front fees and commissions (typically 10% or more in the aggregate), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.  Finally, although they are frequently sold as steady income investments, non-traded BDCs do present the risk of loss of principal.

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Investors in Phillips Edison & Company, Inc. (“PECO”) 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
PECO was formed in Maryland in October 2009 as a non-traded real estate investment trust (or “REIT”), to acquire grocery-anchored shopping centers. In November 2018, PECO officially merged with Phillips Edison Grocery Center REIT II (“Phillips Edison II), a move that caused significant loss to its investors. Investors who purchased shares in PECO at the initial offering acquired shares at $10.00 per share, and while PECO’s sponsor has said that it currently has an estimated net asset value (“NAV”) of $8.75 per share, shares on the limited private secondary market have reportedly traded between $4.50 and $5.50 per share in recent months.

Making matters worse, in March 2020 PECO announced that it would suspended monthly distributions, as well as share repurchases or redemptions, albeit indicating that these  suspensions will be temporary.  As measures to guard against liquidity issues, PECO also reportedly borrowed $200 million from a revolving credit facility and announced plans to reduce expenses.

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Investors in Strategic Student & Senior Housing Trust, Inc. (“SSSHT REIT” or “the 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.

money whirlpool
SSSHT REIT, a publicly registered non-traded real estate investment trust (or “REIT”) sponsored by SmartStop Asset Management LLC, has reportedly suspended its distributions to shareholders, due to concerns over the COVID-19 pandemic’s possible adverse financial impact on the Company.

The REIT’s Board has also suspended its share redemption program (SRP), effective May 3, 2020.  No redemption requests made for the first quarter of 2020 will be honored.  SSSHT indicates that it does not intend to honor investor redemption requests, until further notice.

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Investors in Healthcare Trust, Inc.  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 Bags
According to filings with the SEC, on April 3, 2020, Healthcare Trust announced that its board of directors announced an estimated NAV per share of $15.75 as of December 31, 2019.  This marks a 10% decline from the previous estimated NAV per share of $17.50 per share as of December 31, 2018. Previously, Healthcare Trust lowered its annual distribution rate from $1.45 to $0.85 per share on March 1, 2018, after lowering distributions and previously from $1.70 per share to $1.45 per share in 2017.

But shares of Healthcare Trust, which initially sold for $25.00/share, may be worth even less, and have reportedly changed hands in the limited and illiquid secondary market at prices of between $7.75 and $8.25 a share as of the date of this writing.  Unfortunately for many investors in Healthcare Trust, it would appear that investors who attempt to exit their illiquid investment will incur a substantial loss.

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Investors in Hospitality Investors Trust Inc. (“HIT”), a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality 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 broker or financial advisor.

Wastebasket Filled with Crumpled Dollar Bills
HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets.  As of December 31, 2018, HIT reportedly owned 144 hotels.  The REIT’s offering was declared effective in January 2014 and suspended sales activities in November 2015 after raising $903 million in investor equity, according to Summit Investment Research.

In April 2017, HIT changed its name from American Realty Capital Hospitality Trust to HIT after restructuring to become a standalone self-managed REIT as well as a partnership with Brookfield Strategic Real Estate Partners II.  Prior to the restructure and name change, HIT had an agreement with American Realty Capital Hospitality Advisors LLC, and affiliate of AR Global Trust II.

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Investors in ICON Equipment and Corporate Infrastructure Fund Fourteen, LP (“ICON 14”)  may be able to recover investment losses through FINRA arbitration. 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 blowing in wind
ICON 14 is managed by ICON Capital, LLC, and is part of a category of alternative investments that is commonly referred to as an equipment leasing and finance fund.  Specifically, ICON 14 is a non-traded, publicly registered equipment finance fund.  ICON 14 purportedly makes opportunistic investments in middle market companies by providing financing solutions that are secured by the company’s business-essential equipment as collateral.

ICON 14 was sold to investors beginning in or about 2010 at a per interest price of $1,000.  Now, as its process of liquidation continues, ICON 14 interests appear to be worth less than $32.00 each, and investors have lost a substantial portion of their principal invested, even net of distributions.

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Investors in Strategic Realty Trust (“SRT”) 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. SRT,  formerly known as TNP Strategic Retail Trust, is a non-traded real estate investment trust (REIT) which owns a portfolio of shopping centers that are anchored by such grocers as Publix, Kroger, and Wal-Mart. It is a non-traded REIT sponsored by Thompson National Properties, LLC.

Money Bags
A company known as Mackenzie Realty Capital has just extended a tender offer to purchase shares of the REIT for just $1.00 per share. According to Mackenzie’s letter to investors, SRT has given no indication when it might liquidate, and its charter does not require it to do so on any particular schedule.

Further, although SRT redeems shares on a quarterly basis, repurchases are limited to death or disability of a stockholder.  SRT estimated the REIT’s net asset value per share as $5.86 as of April 2019, a 41.4% decline of from the original offering price of $10 per share.  Shares of SRT have reportedly changed hands at even lower prices of between $2.30 and $2.50 a share in the limited secondary market.

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HMS Income Fund (“HMSIF”), a publicly registered, non-traded business development company, announced a suspension of its share repurchase program and decreased its monthly distribution reinvestment plan share sale price, citing the COVID-19 pandemic.

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HMSIF will suspend repurchases for the second quarter of 2020 and will reevaluate its program depending on circumstances going forward.  HMSIF also announced a reduction of the price at which it sells shares to investor pursuant to its monthly distribution reinvestment plan (known as a “DRIP”) from $7.80 to $6.65 a share beginning with the April 1, 2020 distribution.

HMSIF focuses on loans and investment in small and mid-size companies throughout the United States.  HMSIF reportedly has raised approximately $236.3 million in its public offerings including proceeds from the DRIP of approximately $104.6 million.

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Investors in the Walton Land Fund companies (“Walton”) 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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Walton has marketed a series of highly speculative private placements focused on vacant, undeveloped properties that do not generate income.  The private placements are structured as limited partnerships, and include the following:

Walton U.S. Development Fund, LP

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Investors in Phillips Edison & Co. (“PECO”, formerly known as Phillips Edison Grocery Center REIT I) got bad news when PECO announced its plans to suspend monthly distributions, share repurchases, and its distribution reinvestment plan, indicating that the suspensions will be temporary.  PECO also reportedly borrowed $200 million on its $500 million revolving credit facility in order to increase its liquidity.

Money Maze
Monthly distributions and the distribution reinvestment plan were suspended after the March 2020 distribution,  which PECO paid in cash on April 1, 2020. The share repurchase program, including death, qualifying disability or determination of incompetence (DDI) requests, was also suspended.

PECO began selling shares in or about August 2010 as a publicly registered, non-traded REIT. and raised approximately $1.8 billion from investors.  PECO owns grocery store-based shopping centers and oversees a portfolio of 317 properties.

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