Investors in Cole Credit Property Trust IV, Inc. (“Cole Credit IV”) appear to have incurred substantial principal losses, based on the pricing of a recent tender offer. Recently, third party real estate investment firm MacKenzie Realty Capital, LP (“MacKenzie”) initiated a tender offer to purchase shares of Cole Credit IV at a price of $6.01/share. Therefore, investors who invested in Cole Credit IV through the offering at $10/share will incur substantial losses on their initial investment of approximately 40% (exclusive of commissions paid and distributions received to date).
Cole Credit IV’s real estate portfolio is geographically diverse, and is focused on investments in “income-producing, necessity single-tenant retail properties and anchored shopping centers subject to long-term net lease,” as stated on the company’s website. As a publicly registered non-traded REIT, Cole Credit IV 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 money manager. Cole Credit terminated its offering on April 4, 2014.
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 Cole Credit IV generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Furthermore, non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Thus, many investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment position through redemption directly with the sponsor, and then on a limited basis, and often at a disadvantageous price. According to publicly available information, Cole Credit IV’s share redemption program is currently oversubscribed, leaving shareholders owning approximately 34 million shares largely unable to redeem and exit their illiquid investment position via that route.
However, in some circumstances, as here, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares at what may be a disadvantageous price.
Investors in non-traded REITs like Cole Credit IV 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 (such as its lack of liquidity or the potential for loss of principal) was misrepresented by the stock broker. Investors may contact a securities arbitration lawyer at 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.