Investors in Griffin Capital Essential Asset REIT, Inc. (“Griffin Essential”), may have substantial losses based on a tender offer to purchase shares for $6.89 a share — or $3.11 a share less than the offering price of $10 a share. As recently reported, on December 1, 2017, third-party real estate investment firm MacKenzie Capital Management (“MacKenzie”) made an unsolicited tender offer for shares of Griffin Essential at $6.89 per share, in cash. The Board of Directors of Griffin Essential has recommended that its shareholders reject the offer. However, the Board also advised that, as of September 30, 2017, its share redemption program (“SRP”) for 2017 was fully subscribed, thus leaving investors seeking liquidity via redemption with little recourse.
Griffin Essential is a Maryland REIT incorporated in August 2008 for purposes of acquiring a portfolio of geographically diverse single tenant properties across a wide range of industries. From 2009 – 2014, Griffin Essential conducted a series of offerings in connection with its capital raise. In aggregate, the non-traded REIT issued 126,592,885 shares of common stock for gross proceeds of approximately $1.3 billion. As a publicly registered non-traded REIT, Griffin Essential 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.
Investors who purchased shares of Griffin Essential through the offering acquired their shares for approximately $10 per share. Therefore, it would appear that investors who participated in the MacKenzie tender offer incurred substantial losses on their initial investment in excess of 30% (exclusive of commissions and distributions).
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. To begin, one significant risk associated with non-traded REITs has to do with their high up-front commissions and fees, as high as 15% in some instances. Furthermore, non-traded REITs are generally illiquid investments. Unlike stocks and mutual funds, non-traded REITs do not trade on a deep and liquid national securities exchange. Therefore, many investors in non-traded REITs come to find out too late that their ability to exit their investment position is severely 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. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares.
Investors may be able to pursue claims through FINRA arbitration in the event that a non-traded 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. 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.