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Articles Posted in Non-Traded REITs

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Investors in Moody National REIT II (“Moody 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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Moody II announced in August 2021 that its Board had made the decision to postpone the valuation of its shares. Considering that the non-traded REIT has not updated its net asset value (NAV) since December 2019, investors may have cause for concern that the shares’ value has dropped.   The last estimate of Moody II’s net asset value (NAV) per share- which now seems hopelessly unrealistic- was $23.50 a share as of late 2019.

Moody II is a non-traded real estate investment trust (non-traded REIT).  According to secondary market quotes, Moody II shares have decreased in value   Investors who were relying on Moody II’s most recent (but now nearly two-year-old) estimated NAV (net asset value) of $23.50 a share announced by its sponsor could be in for an unwelcome surprise, as shares have reportedly been sold on the limited secondary market for prices as low as between $5.50 and $6.00 a share during 2021.

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Investors in Hospitality Investors Trust (“HIT”), formerly 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_REIT-640x401-2-300x188 Money_REIT-640x401-3-300x188

HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, declared bankruptcy earlier this year.   Originally sold for $25/share, HIT seen a decline in share price over the last few years.  In March 2021, secondary market service Central Trade & Transfer (CTT) reported trades in HIT for prices as low as 46 cents a share. In May 2021, Hospitality Investors Trust Operating Partnership, LP filed for Chapter 11 bankruptcy protection.   HIT investors later learned that under the bankruptcy plan, their stocks will be canceled and they would be getting contingent cash payments of no more than $6/share.  In July 2021, a bankruptcy court in Delaware approved the Chapter 11 restructuring plan.

HIT had previously announced a decrease in its estimated net asset value (“NAV”) to $8.35 a share, down from $9.21 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.

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Investors in First Capital Real Estate Trust (“First Capital”), a publicly registered, non-traded real estate investment trust (formerly known as United Realty 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.

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First Capital has a checkered history, most recently having faced litigation brought by the Securities and Exchange Commission (“SEC”) alleging violations of the federal securities laws.  On July 13, 2021, the United States District Court for the Southern District of New York entered consent judgments against former First Capital officer Suneet Singal (“Singal”) and his entities, First Capital Real Estate Investments, LLC and First Capital Real Estate Advisors LP, as well as against First Capital Real Estate Trust Inc.  SEC also barred Singal from the securities industry.

The federal judgment provides for Singal and First Capital Real Estate Investments, LLC and Singal to be jointly liable to pay $3.2 million in disgorgement and $676,400 in interest.  Under the judgment, Singal is also solely liable to pay a monetary penalty of $3.2 million and agreed to be barred from serving as an officer or director of a publicly traded company for ten years.

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Investors in First Capital Real Estate Trust (“First Capital”), a publicly registered, non-traded real estate investment trust (formerly known as United Realty 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.

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First Capital REIT’s public offering was active between August 2012 and April 2016, although it has not file a quarterly financial report since the second quarter of 2015, nor has it filed an annual report since 2014.

As the foregoing delinquencies suggest, First Capital has been a slow motion train wreck for over five years.   In a January 2016 Securities and Exchange Commission (“SEC”) filing, the REIT stated that it was not moving forward with a 12-hotel acquisition because the hotel principals could not procure the necessary approvals for the transaction.  In a complaint, the SEC claims that the filing was materially misleading  because the potential transaction was not one that the REIT merely decided “not to move forward with” but instead the transaction allegedly foundered because First Capital’s then-CEO, Suneet Singal (“Singal”), did not actually own certain hotel properties that he had pledge to contribute.

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Investors in Sila Realty Trust Inc. (“Sila”), a publicly registered, non-traded real estate investment trust (formerly known as Carter Validus Mission Critical 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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Sila recently sent a letter to shareholders recommending they reject an unsolicited tender offer by CMG Partners and its affiliates, CMG Income Fund II LLC, CMG Liquidity Fund LLC and Blue River Capital LLC.  Under the tender offer, CMG is offering to buy up to300,000 shares of Sila stock for $3.57 each.  This price is approximately 59 percent less than the REIT’s most recent net asset value per share of $8.69, announced in December 2020. CMG’s offer expires on July 15, 2021, unless extended.  As well as being much lower than Sila’s estimated NAV per share, CMG’s offer price is also lower than certain reported secondary market transactions, which have reportedly taken place at prices over $6.00 a share during 2021.

Sila  merged with another REIT known as with Carter Validus Mission Critical REIT Inc. in late 2019.  Sila recently announced plans to sell its 29-property data center portfolio to subsidiaries of Mapletree Industrial Trust, a REIT listed on the Singapore Exchange, for more than $1.3 billion. The transaction is expected to be completed in one or more closings during the third quarter of 2021.  As of March 31, 2021, Sila reportedly owned 153 real estate properties, consisting of 29 data centers and 124 healthcare properties located in 70 markets across the United States with a total purchase price of approximately $3.2 billion, including capital expenditures on development properties placed into service.

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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.

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PECO, an internally managed real estate investment trust focused on grocery-anchored shopping centers,  recently released the preliminary results of its tender offer to purchase up to 17.4 million shares of common stock from public shareholders at a price of $5.75 per share. Shareholders reportedly tendered approximately 13.5 million shares, and PECO reportedly expects to purchase 100 percent of the tendered shares for approximately $77.7 million beginning on or about January 7, 2021.

PECO also has announced a one-for-four reverse stock split, which reportedly is expected to take place around March 9, 2021, and as a result, every four shares of issued and outstanding common stock will be automatically combined and converted into one share of common stock. A corresponding reverse split of the outstanding OP units will also be effective at that time.

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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.

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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 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.

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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 Griffin-American Healthcare REIT III (“GAH REIT III”), 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.

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GAH REIT III recently announced that it will cut its annual distribution rate in half to $0.30 a share, from $0.60 a share, citing the possible impact of the COVID 19 epidemic on its operations  GAH REIT III also suspended its share repurchase plan.

GAH REIT III is a publicly registered non-traded real estate investment trust (“REIT”) incorporated in January 2013 as a Maryland REIT and is registered with the SEC.  As such. GAH REIT III was permitted to sell securities to the investing public at large, including retail investors who bought shares on the recommendation of a broker or money manager.

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Customers of Voya Financial Advisors, Inc. (“Voya Financial”) may have arbitration claims if they worked with Broker James T. Flynn between 2013 and 2017 or with IFS Securities, Inc. (“IFS Securities”) if they worked with Flynn between 2017 and 2018, and if Mr. Flynn recommended unsuitable securities transactions or made a misleading sales presentation to them.  Voya Financial has reportedly paid over $900,000 to date to settle claims brought by Mr. Flynn’s customers.

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Flynn (CRD#: 3082615), formerly of Voya Financial and most recently with IFS Securities, has been barred by FINRA and has faced dozens of complaints related to his placement of their funds in variable annuities and non-traded real estate investments (REITs).

Non-traded REITs pose many 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 generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

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