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Articles Posted in Non-Traded REITs

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Investors in American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT 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.  According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.

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Recently a Tel Aviv, Israel based private real estate investment fund, Comrit Investments 1 LP (“Comrit”) — launched an unsolicited tender offer to purchase up to 1.6 million shares of ARC NYC REIT for $13.61 a share.  This is lower than a previous $14.68 per share tender offer, since expired, that Comrit made in early 2018

A publicly registered non-traded real estate investment trust (“REIT”), ARC NYC REIT was incorporated in December 2013 as a Maryland REIT and is registered with the SEC.  Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.

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Investors in Carter Validus Mission Critical REIT Inc. (“CVMC REIT I”) and/or Carter Validus Mission Critical REIT II Inc. (“CVMC REIT II”) 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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CVMC REIT I was incorporated on December 16, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, CVMC REIT I was permitted to sell securities to the investing public at large, including unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  CVMC REIT I began offering securities in December 2010 and terminated its offering in June 2014 after raising approximately $1.7 billion in investor equity.  CVMC REIT I invests in purpose-built facilities and owns a portfolio of 61 properties, as of the March 2019.

CVMC REIT II was incorporated on January 11, 2013 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, CVMC REIT II was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  CVMC REIT II began offering securities in May 2014, and after raising $1.2 billion in investor equity in its initial primary offering, CVMC REIT II launched a follow-on offering that terminated in November 2018 after raising an additional $86.9 million.  CVMC REIT II invests in net leased data centers and healthcare assets and owned a portfolio of 85 properties as of March 2019.

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Money MazeEarlier 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.

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The share price of American Finance Trust (“AFIN”), a REIT that published an estimated net asset value (NAV) of $23.56 a share before listing its shares on the Nasdaq Global Select Market (“Nasdaq”) in the summer of 2018, has continued to languish, reaching a market price as low as $10.08 in trading on April 12, 2019.

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As previously reported, on June 29, 2018, the board of directors of AFIN, formerly known as American Realty Capital Trust V, Inc., announced the approval of a plan to list AFIN common stock on the Nasdaq, and listed its shares effective July 19, 2018. Although most investors paid $25.00 a share for AFIN shares in the Company’s offerings, AFIN shares have consistently traded well below that price level since the Nasdaq listing.

Last year, a third party known as MacKenzie Realty Capital Inc. made two unsolicited tender offers to purchase AFIN shares for as much as $15.00 per Class A share- offers that AFIN’s board recommended shareholders reject.

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Investors in Healthcare Trust, Inc. (“HTI”), 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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HTI was incorporated on October 15, 2012, as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, HTI was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  HTI terminated its offering in November 2014 after raising approximately $2.2 billion in investor equity.  HTI invests in multi-tenant medical office buildings and owned a portfolio of 191 properties, as of the fourth quarter of 2018.

The Board of HTI has approved a $17.50 net asset value per share of the company’s common stock as of December 31, 2018, representing a decrease of nearly 13.6 percent compared with HTI’s December 31, 2017 estimated NAV per share of $20.25.   HTI originally sold shares to the public for $25.00 each.   HTI attributed the drop in its reported NAV to the effect of paying distributions to the company’s stockholders that net exceeded cash flows from operations and a $30.5 million decrease in the estimated value of its real estate assets compared to last year.  While this lower $17.50 estimated NAV is bad news for investors, the worse news may be that transactions in the limited secondary market have reportedly taken place at $12.75 to $13.00 a share- suggesting that HTI shares may be worth even less than the estimated NAV.

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Investors in Steadfast Apartment REIT, a publicly registered non-traded real estate investment trust or REIT, have an opportunity to sell their shares- but at a price far below the REIT’s estimated per-share value of $15.84 a share, or its initial $15.00 a share offering price.

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According to Securities and Exchange Commission filings, Comrit Investments I, a Tel Aviv-based investment fund, has commenced an unsolicited tender offer.  Comrit has offered to purchase up to 337,268 shares of Steadfast Apartment REIT Inc. stock at a price of $11.86 per share in cash. The offer expires on March 28, 2019.

Steadfast Apartment REIT, a publicly listed non-traded REIT, invests in “multifamily properties” throughout the United States.  The REIT closed its public offering in March 2016 and has reportedly raised $788 million in investor equity, as of December 31, 2018. The REIT closed its public offering on March 24, 2016.  Steadfast Apartment REIT marketed itself as focused on purchasing established, stable apartment communities with operating histories that demonstrated consistently high occupancy and income levels across market cycles.  Despite its characteristic high offering fees and expenses, Steadfast Apartment REIT is purportedly worth slightly more than its offering price of $15.00 a share, with management estimating its NAV at $15.84 a share.  However, shares have reportedly recently traded in a limited secondary market at prices as low as $12.70 a share.

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As we previously reported, the U.S. Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (known as “FINRA”), the FBI, and the State of Massachusetts are investigating GPB Capital Holdings LLC (“GPB”)  With all the recent news regarding GPB, one investigative authority has fallen under the radar – The New York City Business Integrity Commission.

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If you’ve never heard of the Business Integrity Commission, or BIC, you’re not alone.  In fact, unless you worked for the City of New York in the Sanitation Department, you would most likely never have heard of BIC.  That is because BIC is charged with investigating and rooting out corruption in the private garbage hauling industry in New York.

Waste management was once an area controlled by organized crime, but now is partially run by investment companies like GPB.  In 2017, GPB acquired the private waste management company Five Star Carting and renamed it GPB Waste NY.  The current director of waste strategy for GBP Capital is Rob Porto, a familiar name as he was the former President and COO of Waste Management until he was fired in 1999, charged with insider trading by the SEC, and paid a $3.7 million, and banned from serving as an officer or director of a publicly traded company for five years.

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Investors in Inland Residential Properties Trust Inc. (“Inland Residential”), a publicly registered non-traded real estate investment trust or REIT, have an opportunity to sell their shares- but at a price far below the REIT’s estimated per-share value of $16.06 a share, or its initial $25.00 a share offering price.   MacKenzie Capital Management recently announced an unsolicited tender offer to purchase up to 200,000 shares of Inland Residential, at a price of $11.39 a share. The tender offer expires on March 22, 2019.

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Inland Residential is in the process of being liquidated, which means the company is selling off its assets and distributing the sales proceeds to shareholders pro rata.  Inland Residential’s board estimates that the REIT’s shares have a net asset value or “NAV” of $16.06 as of February 1, 2019.  This $16.06 estimated NAV is net of a distribution of $4.53 a share that Inland Residential previously paid to shareholders after the sale of one of the REIT’s properties.

Inland Residential Properties Trust’s $1 billion offering was declared effective in February 2015.  The offering raised approximately $47 million, selling stock in Inland Residential for $25.00 a share.  The REIT invests in multifamily housing in large metropolitan areas.

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Third-party investment firm  CMG Partners LLC is reportedly offering to pay $3.21 per share of  KBS Real Estate Investment Trust II (“KBS II”), a publicly registered non-traded real estate investment trust or REIT.  KBS II is urging its stockholders not to sell their shares in the tender offer.  In December 2018,  KBS II announced an estimated $4.95 per share net asset value (“NAV”) for the REIT’s common stock.  An NAV is an estimate of a stock’s value per share, based on the estimated value of a company’s property and assets less the estimated value of its liabilities, divided by the number of shares outstanding.

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KBS II has reported paid shareholders $4.50 per share in special distributions from proceeds from its property sales.  KBS II shares were sold in the REIT’s public offering for $10.00 a share.  KBS II closed its public offering in December 2010 after selling $1.8 billion of shares to the public.  Secondary market transactions in KBS II shares have reportedly priced the shares at between $4.00 and $4.06 a share.

Non-traded REITs pose a great deal of 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 like KBS II generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

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BuildingInvestors in Strategic Realty Trust, Inc. (“SRT” or the “Company” — formerly known as TNP Strategic Retail Trust, Inc.), a REIT based in San Mateo, California, may face principal losses if they attempt to sell their shares in the illiquid and fragmented secondary market.  SRT invests in and manages a portfolio of income-producing properties, including various shopping centers, primarily in Western U.S. locations.  Structured as a Maryland corporation that qualifies as a REIT, SRT was formed in September 2008.  By August 2009, the Company had initiated its public offering at $10 per share for up to $1 billion in investor equity.

Retail investors commonly are solicited by financial advisors or stockbrokers to invest in non-traded REITs like SRT, which typically are sold by independent broker-dealer firms.  Unfortunately, customers who purchased shares through SRT’s IPO upon the recommendation of a broker may, in certain instances, have been solicited via misleading sales presentations that failed to adequately disclose the complex nature of the investment, its negative features, and its risks.  Risks associated with non-traded REITs include high up-front commissions (as high as 7-10%), high due diligence and administrative expenses, risk of loss of principal, and illiquidity.

Investors in non-traded REITs including SRT may come to find out too late that their shares are illiquid, and their options to exit the investment are limited.  Briefly, investors seeking liquidity may: (i) seek to redeem their shares directly with the sponsor (SRT suspended its redemption program altogether from January 15, 2013 – April 1, 2015), (ii) be presented with limited, market-driven opportunities to tender their shares to a third party investment firm (typically at a disadvantageous price), or (iii) sell their shares on a limited and fragmented secondary market specializing in creating a trading platform for illiquid securities.

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