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Articles Posted in Non-Traded REITs

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Investors in Hospitality Investors Trust (“HIT”), also known as American Realty Capital Hospitality Trust or ARC Hospitality, 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
HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, announced a 33.6% decrease in its net asset value (“NAV”) to $9.21 per share, following a share repurchase program in October, 2018 in which shares were purchased at $9.00 per share.

As a publicly registered non-traded REIT, HIT 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.  Original investors of HIT could purchase shares at $25.00 per share.  However, the REIT’s estimated NAV is currently $9.21, and even worse, shares on the secondary market have reportedly been sold at prices between $3.75 and $3.99 a share.

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Investors in Lightstone Value Plus REIT V (“Lightstone V”) 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
Lightstone V (originally named Behringer Harvard Opportunity REIT II until July 2017) was formed as a non-traded real estate investment trust in January 2008, also known as a REIT, to invest in retail and other types of commercial properties. Investors who purchased shares in Lightstone V at the initial offering acquired shares at $10 per share, but currently has a net asset value (“NAV”) of $9.10 per share. Even worse, shares on the limited secondary market have reportedly traded at prices as low as between $5.95 and $6.25 per share.

Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like Lightstone V generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

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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.  HTI was incorporated on October 15, 2012, as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  HTI invests in multi-tenant medical office buildings and, as of year-end 2017, owned a portfolio consisting of 8.4 million-square-feet including 164 properties, with a total purchase price of $2.3 billion.

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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 through the offering 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.

Recently, third party real estate investment firm MacKenzie Capital Management(“MacKenzie”) initiated an unsolicited mini-tender offer to purchase up to 200,000 shares of HTI for $7.99 per share.  In response, HTI launched its own tender offer to purchase up to 200,000 shares for $8.50 a share, “in order to deter MacKenzie and other potential future bidders that may try to exploit the illiquidity of the shares and acquire them from the company’s stockholders at prices substantially below their estimated [net asset value per share].”

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Investors in Cole Credit Property Trust IV Inc. (“Cole IV”, now known as CIM Real Estate Finance 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 stockbroker or advisor.

money whirlpool
Cole IV was formed as a non-traded real estate investment trust, also known as a REIT, that invests in income-producing single-tenant retail properties with long-term net leases with credit-worthy tenants.  Investors who purchased shares in Cole IV at the initial offering acquired shares at $10 per share, but currently has a reported estimated net asset value (“NAV”) of $8.65 per share.  Even worse, shares on the secondary market are valued between $6.35 and $6.55 per share.

Although investors may be disappointed at the low $8.65 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if Cole IV were liquidated, listed on an exchange or merged with a public company.  Financial analysts frequently assume that non-traded investments such as Cole IV will trade at a discount to NAV if listed on a securities exchange.  In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market.  AFIN shares now trade at less than $13 a share as of January 2020.

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Investors in non-traded REITs Steadfast Apartment REIT, Steadfast Apartment REIT III and Steadfast Income 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.

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According to public filings with the Securities and Exchange Commission (SEC), on December 19, 2019, Steadfast Apartment REIT III, Inc. (STAR III) and Steadfast Income REIT (SIR) filed their respective definitive proxies seeking shareholder approval of the proposed mergers with Steadfast Apartment REIT, Inc. (STAR).

These transactions were previously announced by Steadfast in August 2019, but the December 2019 SEC filings provide additional information as the REITs prepare for a shareholder vote.  If approved, these transactions would result in a consolidation of STAR III and SIR into non-traded REIT, Steadfast Apartment REIT.  Under the terms of the mergers, STAR III shareholders would reportedly receive 1.43 shares of STAR common stock as consideration, and SIR shareholders would receive 0.5934 shares of STAR common stock as consideration, on a NAV-for-NAV basis.

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Investors in Benefit Street Partners Realty Trust, Inc. (“Benefit Street”) 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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Falling American Currency

Benefit Street, formerly known as Realty Finance Trust, changed its name around September 2016 when they appointed Benefit Street Partners as its new advisor. Benefit Street was founded in 2012 as a non-traded real estate investment trust, also known as a REIT.  Investors who purchased shares in Benefit Street through the offering acquired shares at $25 per share, but currently has an estimated net asset value (“NAV”) of $18.75 per share.  Even worse, shares on the secondary market are valued between $14.25 and $14.00 per share.

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Investors in 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.

Money Maze
The Board of  CVMC II REIT, a publicly registered non-traded real estate investment trust, approved an estimated net asset value of $8.65 per share for the REIT’s Class A, Class I, Class T, and Class T2 shares of common stock, calculated as of October 31, 2019.  The previous NAV per share was $9.25 as of June 30, 2018 and shares originally sold for $10.00 each.  Carter Validus Mission Critical REIT II recently merged with an affiliated non-traded REIT, Carter Validus Mission Critical REIT. The company noted that while the value of its pre- and post-merger real estate portfolio increased, the NAV was negatively impacted by transaction costs incurred from Carter Validus Mission Critical REIT’s merger-related costs, among other things.

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 pr Carter Validus Mission Critical REIT II, which invests in net leased data center and healthcare assets, went effective in May 2014 and has raised $1 billion in investor equity, as of July 18th. The REIT’s portfolio is comprised of 62 properties (20 data center and 42 healthcare properties) that were purchased for approximately $1.4 billion.

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The Securities and Exchange Commission (SEC) has charged Suneet Singal (“Singal”) with fraud relating to First Capital Real Estate Trust Inc. (“First Capital”), a non-traded real estate investment trust formerly known as United Realty Trust.  Singal is the CEO and Chairman of  First Capital.

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Prior to Singal’s involvement, First Capital, then known as United Realty Trust, was reportedly sold to public investors by broker dealers, and held out as  a safe income investment that would provide distributions and also return investors’ principal after a period of years.  But First Capital was in fact a risky and illiquid non-traded REIT.   First Capital paid upfront sales commissions and dealer-manager fees totaling 10% of the REIT’s $11.00 a share offering price.  These enormous commissions and fees dwarf the commissions available to brokerages and brokers on the sale of conventional investment products.

While it has publicized a net asset value (NAV) in excess of its offering price, First Capital has not filed public financial reports with the SEC on Forms 10-Q and 10-K since August of 2015, leaving investors to guess as to the true value of their shares.

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NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) a public, non-traded REIT, has lowered its estimates net asset value or “NAV” to $6.25 a share.  Shares were originally sold for $10.00 a share.   NorthStar Healthcare had last reported a $7.10 NAV per share, as of June 30, 2018.  More recently, Robert A. Stanger & Co. Inc., developed the $6.25 a share valuation, which is based on the estimated value of NorthStar Healthcare’s assets, less the estimated value of its liabilities, divided by the number of shares outstanding as of June 30, 2019.  Stanger reportedly relied upon appraisals for 75 properties with an estimated value of $1.99 billion in estimating the new NAV.

investing in real estate through a limited partnership
Although investors may be disappointed at the low $6.25 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if NorthStar Healthcare were liquidated, listed on an exchange or merged with a public company.  Financial analysts frequently assume that non-traded investments such as NorthStar Healthcare will trade at a discount to NAV if listed on a securities exchange.  In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market.  AFIN shares now trade at $14.56 a share as of the close of the market on December 4, 2019.

Recently, shares of NorthStar Healthcare were reportedly trading on a secondary platform at  prices as low as $2.45 a share- down from over $5.00 a share a year ago and a far cry from even the new, lowered $6.25 NAV.

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Investors in New York City REIT Inc., formerly known as 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.

Piggybank in a Cage
In October 2019, the independent directors of  ARC NYC REIT approved an estimated net asset value of $20.26 per share, as of June 30, 2019. Last year’s NAV per share was also $20.26, and shares were originally sold for $25.00 each.

However, net asset value or NAV may not reflect the actual value that shareholders would realize if ARC NYC REIT were liquidated, listed on an exchange or merged with a public company.  Financial analysts frequently assume that non-traded investments such as ARC NYC REIT will trade at a discount to NAV if listed on a securities exchange.  In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market.  AFIN shares now trade at $14.56 a share as of the close of the market on December 4, 2019.